Affordable Access

Publisher Website

Understanding the aggregate effects of anticipated and unanticipated tax policy shocks

Authors
Publisher
Elsevier Inc.
Publication Date
Volume
14
Issue
1
Identifiers
DOI: 10.1016/j.red.2010.07.004
Keywords
  • Fiscal Policy
  • Tax Shocks
  • Anticipation Effects
  • Structural Estimation
Disciplines
  • Economics

Abstract

Abstract This paper evaluates the extent to which a DSGE model can account for the impact of tax policy shocks. We estimate the response of macroeconomic aggregates to anticipated and unanticipated tax shocks in the US and find that unanticipated tax cuts have persistent expansionary effects on output, consumption, investment and hours worked. Anticipated tax cuts give rise to contractions in output, investment and hours worked prior to their implementation, while stimulating the economy when implemented. We show that a DSGE model can account quite successfully for these findings. The main features of the model are adjustment costs, consumption durables, variable capacity utilization and habit formation.

There are no comments yet on this publication. Be the first to share your thoughts.