Macroeconomic Effects of Tax Rate and Base Changes: Evidence from Fiscal Consolidations

September 28, 2018

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Era Dabla-Norris, and Frederico Lima. Macroeconomic Effects of Tax Rate and Base Changes: Evidence from Fiscal Consolidations, (USA: International Monetary Fund, 2018) accessed December 26, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper examines the macroeconomic effects of tax changes during fiscal consolidations. We build a new narrative dataset of tax changes during fiscal consolidation years, containing detailed information on the expected revenue impact, motivation, and announcement and implementation dates of nearly 2,500 tax measures across 10 OECD countries. We analyze the macroeconomic impact of tax changes, distinguishing between tax rate and tax base changes, and further separating between changes in personal income, corporate income, and value added tax. Our results suggest that base broadening during fiscal consolidations leads to smaller output and employment declines compared to rate hikes, even when distinguishing between tax types.

Subject: Corporate income tax, Economic sectors, Expenditure, Financial crises, Personal income tax, Revenue administration, Taxes, Value-added tax

Keywords: Corporate income tax, Debt ratio, Estimated tax, Global, Narrative dataset, Personal income tax, Southern Europe, Tax base, Tax measure, Tax multiplier, Tax multipliers, Tax rate, Tax shock, Value-added tax

Publication Details

Pages:

47
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/220
Stock No:

WPIEA2018220
ISBN:

9781484377451
ISSN:

1018-5941

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