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Non-Linear Effects of Tax Changes on Output: The Role of the Initial Level of Taxation

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dc.contributor.authorGunter, Samara
dc.contributor.authorRiera-Crichton, Daniel
dc.contributor.authorVegh, Carlos
dc.contributor.authorVuletin, Guillermo
dc.date.accessioned2018-12-11T20:20:00Z
dc.date.available2018-12-11T20:20:00Z
dc.date.issued2018-12
dc.description.abstractThis paper estimates the effect of worldwide tax changes on output following the narrative approach developed for the United States by Romer and Romer (2010). The analysis uses a novel dataset on value-added taxes for 51 countries (21 industrial and 30 developing) for the period 1970-2014 to identify 96 tax changes. It then uses contemporaneous economic records to classify such changes as endogenous or exogenous to current (or prospective) economic conditions. In line with theoretical distortionary and disincentive-based arguments, and using only exogenous tax changes, the main finding is that the effect of tax changes on output is highly non-linear. The tax multiplier is essentially zero under relatively low/moderate initial tax rate levels and more negative as the initial tax rate and the size of the change in the tax rate increase. Based on a global sample, these novel non-linear findings suggest that the recent consensus pointing to large negative tax multipliers in industrial countries, particularly in Europe (e.g., Alesina, Favero, and Giavazzi, 2015), (i) is not a robust empirical regularity, and (ii) is mainly driven by high initial tax rates in these countries. The paper also shows that the bias introduced by misidentification of tax shocks critically depends on the procyclical or countercyclical nature of endogenous tax changes. The relevance of the arguments is evaluated both for the novel global sample and for Romer and Romer's U.S. dataset.en
dc.identifierhttp://documents.worldbank.org/curated/en/654331544193195012/Non-Linear-Effects-of-Tax-Changes-on-Output-The-Role-of-the-Initial-Level-of-Taxation
dc.identifier.doi10.1596/1813-9450-8668
dc.identifier.urihttps://hdl.handle.net/10986/30990
dc.languageEnglish
dc.publisherWorld Bank, Washington, DC
dc.relation.ispartofseriesPolicy Research Working Paper;No. 8668
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo
dc.subjectTAXATION
dc.subjectTAX RATES
dc.subjectTAX MULTIPLIER
dc.subjectTAX POLICY
dc.subjectVALUE ADDED TAX
dc.subjectBUSINESS CYCLES
dc.subjectTAX SHOCKS
dc.titleNon-Linear Effects of Tax Changes on Outputen
dc.title.subtitleThe Role of the Initial Level of Taxationen
dc.typeWorking Paperen
dc.typeDocument de travailfr
dc.typeDocumento de trabajoes
dspace.entity.typePublication
okr.crossref.titleNon-Linear Effects of Tax Changes on Output: The Role of the Initial Level of Taxation
okr.date.disclosure2018-12-07
okr.date.doiregistration2025-04-07T08:20:58.547775Z
okr.date.doiregistration2025-04-08T16:09:49.390457Z
okr.date.doiregistration2025-04-09T02:58:05.491488Z
okr.doctypePublications & Research::Policy Research Working Paper
okr.doctypePublications & Research
okr.docurlhttp://documents.worldbank.org/curated/en/654331544193195012/Non-Linear-Effects-of-Tax-Changes-on-Output-The-Role-of-the-Initial-Level-of-Taxation
okr.guid654331544193195012
okr.identifier.doi10.1596/1813-9450-8668
okr.identifier.externaldocumentum090224b086706adb_1_0
okr.identifier.internaldocumentum30675185
okr.identifier.reportWPS8668
okr.importedtrueen
okr.language.supporteden
okr.pdfurlhttp://documents.worldbank.org/curated/en/654331544193195012/pdf/WPS8668.pdfen
okr.region.administrativeLatin America & Caribbean
okr.region.countryUnited States
okr.statistics.combined2575
okr.statistics.dr654331544193195012
okr.statistics.drstats975
okr.topicMacroeconomics and Economic Growth::Business Cycles and Stabilization Policies
okr.topicMacroeconomics and Economic Growth::Economic Growth
okr.topicMacroeconomics and Economic Growth::Economic Theory & Research
okr.topicMacroeconomics and Economic Growth::Fiscal & Monetary Policy
okr.topicMacroeconomics and Economic Growth::Taxation & Subsidies
okr.unitOffice of the Chief Economist, Latin America and the Caribbean Region
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