Working Paper

Policy Implications of Non-linear Effects of Tax Changes on Output

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collection.link.5
https://openknowledge.worldbank.org/handle/10986/9
collection.name.5
Policy Research Working Papers
dc.contributor.author
Gunter, Samara
dc.contributor.author
Riera-Crichton, Daniel
dc.contributor.author
Vegh, Carlos
dc.contributor.author
Vuletin, Guillermo
dc.date.accessioned
2019-01-31T23:52:24Z
dc.date.available
2019-01-31T23:52:24Z
dc.date.issued
2019-01
dc.date.lastModified
2021-09-13T12:20:58Z
dc.description.abstract
An earlier paper titled "Non-linear effects of tax changes on output: The role of the initial level of taxation," estimated tax multipliers using (i) a novel dataset on value-added taxes for 51 countries (21 industrial and 30 developing) for the period 1970-2014, and (ii) the so-called narrative approach developed by Romer and Romer (2010) to properly identify exogenous tax changes. The main finding is that, in line with existing theoretical distortionary and disincentive-based arguments, 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. This companion paper first shows that these findings have important policy implications, given that the initial level of taxes varies greatly across countries and thus so will the potential output effect of changing tax rates. The paper then turns to some specific policy applications. It focuses on the relevance of the arguments for revenue mobilization in countries with low levels of provision of public goods and social and infrastructure gaps, as well as in commodity-dependent countries. The paper then considers some practical implications for the standard debt sustainability analysis. Lastly, it evaluates the implications of the findings for the Laffer curve.
en
dc.identifier
http://documents.worldbank.org/curated/en/158141548698817351/Policy-Implications-of-Non-linear-Effects-of-Tax-Changes-on-Output
dc.identifier.uri
http://hdl.handle.net/10986/31188
dc.language
English
dc.publisher
World Bank, Washington, DC
dc.relation.ispartofseries
Policy Research Working Paper;No. 8720
dc.rights
CC BY 3.0 IGO
dc.rights.holder
World Bank
dc.rights.uri
http://creativecommons.org/licenses/by/3.0/igo
dc.subject
TAX MULTIPLIER
dc.subject
TAX POLICY
dc.subject
TAX RATE
dc.subject
VALUE ADDED TAX
dc.subject
ECONOMIC GROWTH
dc.subject
LAFFER CURVE
dc.title
Policy Implications of Non-linear Effects of Tax Changes on Output
en
dc.type
Working Paper
en
okr.crossref.title
Policy Implications of Non-Linear Effects of Tax Changes on Output
okr.date.disclosure
2019-01-28
okr.doctype
Publications & Research
okr.doctype
Publications & Research :: Policy Research Working Paper
okr.docurl
http://documents.worldbank.org/curated/en/158141548698817351/Policy-Implications-of-Non-linear-Effects-of-Tax-Changes-on-Output
okr.googlescholar.linkpresent
yes
okr.identifier.doi
10.1596/1813-9450-8720
okr.identifier.externaldocumentum
090224b0868dc353_1_0
okr.identifier.internaldocumentum
30790392
okr.identifier.report
WPS8720
okr.imported
true
en
okr.language.supported
en
okr.pdfurl
http://documents.worldbank.org/curated/en/158141548698817351/pdf/WPS8720.pdf
en
okr.statistics.combined
1433
okr.statistics.dr
158141548698817351
okr.topic
Macroeconomics and Economic Growth :: Economic Growth
okr.topic
Macroeconomics and Economic Growth :: Economic Theory & Research
okr.topic
Macroeconomics and Economic Growth :: Macroeconomic Management
okr.topic
Macroeconomics and Economic Growth :: Taxation & Subsidies
okr.topic
Public Sector Development :: Public Sector Economics
okr.unit
Office of the Chief Economist, Latin America and the Caribbean Region

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