The Output Effects of Tax Changes: Narrative Evidence from Spain
45 Pages Posted: 27 May 2017
Date Written: May 26, 2017
This paper estimates the GDP impact of legislated tax changes in Spain using a newly constructed narrative record for the period 1986-2015. Our baseline estimates suggest that a 1% of GDP increase in exogenous taxes depresses output by around 1.3% after one year, this negative effect fading away at more distant horizons. We also find that the effect of changes in indirect taxes are larger and that, following a tax increase, investment reacts more than consumption. Overall, our set of estimates is consistent with negative output effects triggered by tax increases, yet the quantitative effects are subject to non-negligible uncertainty that is reflected in wide confidence bands, in line with the extant literature for other countries.
Keywords: tax shocks, narrative record, fiscal policy, GDP growth
JEL Classification: E32, E62, H20
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