Macroeconomic Effects of Tax Rate and Base Changes: Evidence from Fiscal Consolidations

48 Pages Posted: 16 Oct 2018

See all articles by Era Dabla-Norris

Era Dabla-Norris

International Monetary Fund (IMF)

Frederico Lima

International Monetary Fund (IMF)

Date Written: September 2018

Abstract

This paper examines the macroeconomic effects of tax changes during fiscal consolidations. Webuild a new narrative dataset of tax changes during fiscal consolidation years, containing detailed information on the expected revenue impact, motivation, and announcement and implementation dates of nearly 2,500 tax measures across 10 OECD countries. We analyze the macroeconomic impact of tax changes, distinguishing between tax rate and tax base changes, and further separating between changes in personal income, corporate income, and value added tax. Our results suggest that base broadening during fiscal consolidations leads to smaller output and employment declines compared to rate hikes, even when distinguishing between tax types.

Keywords: tax base, tax rate, narrative dataset, tax multipliers, Personal Income and Other Nonbusiness Taxes and Subsidies, Business Taxes and Subsidies, General, International, or Comparative

JEL Classification: E32, E62, H24, H25, N10

Suggested Citation

Dabla-Norris, Era and Lima, Frederico, Macroeconomic Effects of Tax Rate and Base Changes: Evidence from Fiscal Consolidations (September 2018). IMF Working Paper No. 18/220. Available at SSRN: https://ssrn.com/abstract=3267244

Era Dabla-Norris (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Frederico Lima

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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