Tax Multipliers Across the Business Cycle

38 Pages Posted: 8 Dec 2020

See all articles by Dennis Bonam

Dennis Bonam

De Nederlandsche Bank

Paul Konietschke

European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2020

Abstract


e estimate the impact of tax shocks on output across different stages of the business cycle. We do this for a panel of nine advanced economies using a harmonized dataset of narratively identified exogenous tax changes and a smooth transition local projection model. The output response to an exogenous tax shock is significant, but only during economic expansions. In recessions, the tax multiplier is insignificant, both in the short- and long run. We also find that, during booms, output only responds to tax hikes and is unresponsive to tax cuts. The results on the state-dependent and asymmetric effects of tax shocks are robust to a number of alternative model specifications and definitions of the business cycle.

Keywords: tax multiplier, state-dependent effects of fiscal policy, local projection method

JEL Classification: E32, E62

Suggested Citation

Bonam, Dennis and Konietschke, Paul, Tax Multipliers Across the Business Cycle (December 1, 2020). De Nederlandsche Bank Working Paper No. 699, Available at SSRN: https://ssrn.com/abstract=3743967 or http://dx.doi.org/10.2139/ssrn.3743967

Dennis Bonam (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands
0031205242924 (Phone)

Paul Konietschke

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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