IMF Working Papers

Unpleasant Surprises? Elections and Tax News Shocks

By Antonio David, Can Sever

June 30, 2023

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Format: Chicago

Antonio David, and Can Sever. Unpleasant Surprises? Elections and Tax News Shocks, (USA: International Monetary Fund, 2023) accessed November 21, 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

Unanticipated changes in tax policy are likely to have different macroeconomic effects compared to anticipated changes due to several mechanisms, including fiscal foresight and policy uncertainty. It is therefore important to understand what drives such policy surprises. We explore the nature of unanticipated tax policy changes by focusing on a political economy determinant of those events, namely the timing of elections. Using monthly data for 22 advanced economies and emerging markets over the period 1990-2018, we show that implementation lags tend to be significantly longer for tax policy change announcements that are made during the pre-election periods, thereby leading to a lower likelihood of “tax news shocks”. We also find that implementation lags become much shorter for tax policy changes that are announced in the aftermath of elections, generating more frequent tax news shocks. This pattern remains similar for different tax measures or types of taxes. The findings are robust to a number of checks, including alternative definitions of tax news shocks, or to controlling for various economic and institutional factors.

Subject: Consumption taxes, Corporate income tax, Econometric analysis, Fiscal policy, Income tax systems, Probit models, Taxes

Keywords: Change announcement, Consumption taxes, Corporate income tax, Election period, Electoral Cycles, Global, Implementation lag, Income tax systems, News shock, Political Economy, Probit models, Tax policy policy change, Tax Shocks

Publication Details

  • Pages:

    35

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2023/139

  • Stock No:

    WPIEA2023139

  • ISBN:

    9798400244919

  • ISSN:

    1018-5941

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