The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States

From Karel Mertens and Morten Ravn:

This paper presents evidence on the aggregate effects of changes in federal tax policy in the United States in the post-WWII sample. Exogenous changes in taxes are identified in a vector autoregressive model by proxying latent tax shocks with narratively identified tax liability changes. We discriminate between the effects of changes in average personal income tax rates (APITRs) and the effects of changes in average corporate income tax rates (ACITRs). We find large short run effects on aggregate output of unanticipated changes in either tax rates. Cuts in personal income taxes lead to a fall in tax revenues while corporate income tax cuts on average have little impact on tax revenues. Cuts in APITRs raise employment, consump- tion and investment. Cuts in ACITRs boost investment, do not affect or even lower private consumption, and have no immediate effects on employment. 

About ozidar

I'm an Assistant Professor of Economics at the University of Chicago Booth School of Business and a Faculty Research Fellow at National Bureau of Economic Research. You can follow me on twitter @omzidar.
This entry was posted in Uncategorized and tagged , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s