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Empirical Evidence on the Aggregate Effects of Anticipated and Unanticipated US Tax Policy Shocks

Empirical Evidence on the Aggregate Effects of Anticipated and Unanticipated US Tax Policy Shocks Abstract We provide evidence on the dynamic effects of tax liability changes in the United States. We distinguish between surprise and anticipated tax changes. Preannounced but not yet implemented tax cuts give rise to contractions in output, investment, and hours worked while real wages increase. There are no significant anticipation effects on aggregate consumption. Implemented tax cuts, regardless of their timing, have expansionary effects, on output, consumption, investment, hours worked, and real wages. Results are shown to be robust. Tax shocks are important impulses to the US business cycle and anticipation effects have been important during several business cycle episodes. (JEL E23 , E32 , E62 , H20 , H30 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Economic Policy American Economic Association

Empirical Evidence on the Aggregate Effects of Anticipated and Unanticipated US Tax Policy Shocks

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Publisher
American Economic Association
Copyright
Copyright © 2012 by the American Economic Association
Subject
Articles
ISSN
1945-7731
eISSN
1945-774x
DOI
10.1257/pol.4.2.145
Publisher site
See Article on Publisher Site

Abstract

Abstract We provide evidence on the dynamic effects of tax liability changes in the United States. We distinguish between surprise and anticipated tax changes. Preannounced but not yet implemented tax cuts give rise to contractions in output, investment, and hours worked while real wages increase. There are no significant anticipation effects on aggregate consumption. Implemented tax cuts, regardless of their timing, have expansionary effects, on output, consumption, investment, hours worked, and real wages. Results are shown to be robust. Tax shocks are important impulses to the US business cycle and anticipation effects have been important during several business cycle episodes. (JEL E23 , E32 , E62 , H20 , H30 )

Journal

American Economic Journal: Economic Policy – American Economic Association

Published: May 1, 2012

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