The Effects of Tax Changes on Economic Activity: A Narrative Approach to Frequent Anticipations

56 Pages Posted: 10 Sep 2018

Date Written: September 7, 2018

Abstract

This paper studies the effects of anticipations of tax changes in the USA through the release of tax news in the media. I construct a new measure that captures the anticipation of tax bill approvals by exploiting the content of news in the US television. Since this information typically flows faster than standard measures of GDP, I propose a mixed frequency dynamic factor model to estimate both the economic activity latent factor and the effects of anticipated tax shocks on it. I find that onemonth-ahead media anticipations of tax approvals significantly stimulate current economic activity. This stimulation comes from anticipations of tax cuts.

Keywords: fiscal policy, taxation, mass media, information, beliefs, random forests

JEL Classification: E62, H20, N12, D80

Suggested Citation

García-Uribe, Sandra, The Effects of Tax Changes on Economic Activity: A Narrative Approach to Frequent Anticipations (September 7, 2018). Banco de Espana Working Paper No. 1828. Available at SSRN: https://ssrn.com/abstract=3245780 or http://dx.doi.org/10.2139/ssrn.3245780

Sandra García-Uribe (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Register to save articles to
your library

Register

Paper statistics

Downloads
11
Abstract Views
138
PlumX Metrics