scholarly journals The Macroeconomic Effects of Income and Consumption Tax Changes

2021 ◽  
Vol 13 (2) ◽  
pp. 439-466
Author(s):  
Anh D.M. Nguyen ◽  
Luisanna Onnis ◽  
Raffaele Rossi
Keyword(s):  
Income Tax ◽  
Transmission Mechanism ◽  
Consumption Tax ◽  
Indirect Taxation ◽  
The United Kingdom ◽  
Tax Shocks ◽  
Tax Changes ◽  
Consumption Taxes ◽  
Narrative Account ◽  
Tax Cuts

This paper estimates the effects of exogenous changes in income and consumption taxes. The tax shocks are proxied with a narrative account of tax liability changes in the United Kingdom. Income tax cuts have large effects on GDP, private consumption, and investment. The effects of consumption tax cuts are modest and not statistically significant on GDP and its components. Shifting the burden of taxation from income to consumption is expansionary. Consistent with conventional public finance theories, these results indicate that it is crucial to distinguish between direct and indirect taxation when studying the transmission mechanism of fiscal policy. (JEL E21, E22, E23, H24, H25)

scholarly journals The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States

2013 ◽  
Vol 103 (4) ◽  
pp. 1212-1247 ◽  
Author(s):  
Karel Mertens ◽  
Morten O Ravn
Keyword(s):  
United States ◽  
Income Tax ◽  
The United States ◽  
Income Taxes ◽  
Dynamic Effects ◽  
Different Types ◽  
Short Run ◽  
Tax Shocks ◽  
Tax Changes ◽  
Narrative Account

This paper estimates the dynamic effects of changes in taxes in the United States. We distinguish between changes in personal and corporate income taxes and develop a new narrative account of federal tax liability changes in these two tax components. We develop an estimator which uses narratively identified tax changes as proxies for structural tax shocks and apply it to quarterly post-WWII data. We find that short run output effects of tax shocks are large and that it is important to distinguish between different types of taxes when considering their impact on the labor market and on expenditure components. (JEL E23, E62, H24, H25, H31, H32)

scholarly journals The Fiscal State-Dependent Effects of Capital Income Tax Cuts

2020 ◽  
Vol 20 (71) ◽  
Author(s):  
Alexandra Fotiou ◽  
Wenyi Shen ◽  
Shu-Chun Susan Yang
Keyword(s):  
Regime Switching ◽  
Income Tax ◽  
Government Debt ◽  
Smooth Transition ◽  
Consumption Tax ◽  
Capital Income ◽  
State Dependent ◽  
Fiscal State ◽  
High Level ◽  
Tax Cuts

Using the post-WWII data of U.S. federal corporate income tax changes, within a Smooth Transition VAR, this paper finds that the output effect of capital income tax cuts is government debt-dependent: it is less expansionary when debt is high than when it is low. To explore the mechanisms that can drive this fiscal state-dependent tax effect, the paper uses a DSGE model with regime-switching fiscal policy and finds that a capital income tax cut is stimulative to the extent that it is unlikely to result in a future fiscal adjustment. As government debt increases to a sufficiently high level, the probability of future fiscal adjustments starts rising, and the expansionary effects of a capital income tax cut can diminish substantially, whether the expected adjustments are through a policy reversal or a consumption tax increase. Also, a capital income tax cut need not always have large revenue feedback effects as suggested in the literature.

scholarly journals The Aging of the Baby Boomers: Demographics and Propagation of Tax Shocks

2020 ◽  
Vol 12 (2) ◽  
pp. 167-193
Author(s):  
Domenico Ferraro ◽  
Giuseppe Fiori
Keyword(s):  
Labor Force ◽  
Baby Boomers ◽  
Unemployment Rate ◽  
Age Groups ◽  
Marginal Tax Rate ◽  
Structural Shocks ◽  
Tax Rate ◽  
Tax Shocks ◽  
Tax Changes ◽  
Tax Cuts

We study how the changing demographic composition of the US labor force has affected the response of the unemployment rate to marginal tax rate shocks. Using narratively identified tax changes as proxies for structural shocks, we establish that the responsiveness of the unemployment rates to tax changes varies significantly across age groups: the unemployment rate response of the young is nearly twice as large as that of the old. This heterogeneity is the channel through which shifts in the age composition of the labor force impact the response of the unemployment rate to tax cuts. We find that the aging of the baby boomers considerably reduces the effects of tax cuts on aggregate unemployment. (JEL E24, E62, H24, H31, J21)

Three Views of Tax

2005 ◽  
Vol 18 (1) ◽  
pp. 153-164 ◽  
Author(s):  
Edward J. McCaffery
Keyword(s):  
Income Tax ◽  
Consumption Tax ◽  
Moral Intuitions ◽  
Redistributive Taxation ◽  
Consumption Taxes

Virtually all liberal egalitarian advocates of redistributive taxation support an income tax, believing that consumption taxes fail to reach capital and its yield. But this is not true under progressive rates. There are two forms of consumption tax, prepaid and postpaid. A consistent progressive postpaid consumption tax reaches the yield to capital in just those cases in which ordinary moral intuitions want it to be reached: when savings are used to finance a “better,” more expensive, lifestyle. Such a tax stands between an income tax, which double taxes all savings, come what may, and a prepaid consumption tax, which never taxes savings. It is the last, best hope for some semblance of redistribution via tax on earth.

Consumption Taxes, Income Taxes, and Revenue Sensitivity: States and the Great Recession

2017 ◽  
Vol 47 (2) ◽  
pp. 349-381
Author(s):  
Howard Chernick ◽  
Cordelia Reimers
Keyword(s):  
Great Recession ◽  
Income Tax ◽  
Income Taxes ◽  
Consumption Tax ◽  
Income Class ◽  
The Great Recession ◽  
Income Distributions ◽  
Tax Revenues ◽  
State Income ◽  
Consumption Taxes

This article uses an income-distributional approach to state tax sensitivity to examine the assumption that consumption taxes are more stable than income taxes. We estimate the 2007 to 2009 change in tax revenues as a function of state income distributions and tax burdens by income class. We estimate tax burdens as a function of income tax shares and consumption tax shares. We then simulate the change in tax revenues with tax shares at the national average. If high-income-tax states were to lower their reliance on this tax, the revenue decline during the recession would have been greater. For high consumption tax states, the revenue decline under higher income tax shares would have been smaller. Had they shifted toward consumption taxes, income tax reliant states would not have reduced the cyclical sensitivity of tax revenues during the Great Recession. The interaction between tax burdens and recession shocks by income class is key to these results.

PUBLIC INVESTMENT FINANCED BY CONSUMPTION TAX IN AN AGING SOCIETY

2015 ◽  
Vol 60 (05) ◽  
pp. 1550043
Author(s):  
MINORU WATANABE ◽  
YUSUKE MIYAKE ◽  
MASAYA YASUOKA
Keyword(s):  
Social Welfare ◽  
Income Tax ◽  
Growth Models ◽  
Public Investment ◽  
Developed Countries ◽  
Income Growth ◽  
Consumption Tax ◽  
Investment Financing ◽  
Aging Societies ◽  
Consumption Taxes

Earlier papers have examined endogenous growth models including public investment financed by an income tax. However, public capital with such financing has not been reported. Aging societies are developing rapidly in economically developed countries. Consumption taxes to finance government expenditures are attractive to alleviate intergenerational inequality. In this paper, we demonstrate that, for public investment financing, a consumption tax is better than an income tax for income growth. If a future generation’s utility is not discounted greatly in social welfare, a consumption tax is superior. A government-set income growth rate target makes income tax financing desirable by providing more social welfare.

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

2012 ◽  
Vol 4 (2) ◽  
pp. 145-181 ◽  
Author(s):  
Karel Mertens ◽  
Morten O Ravn
Keyword(s):  
Business Cycle ◽  
The United States ◽  
Real Wages ◽  
Hours Worked ◽  
Aggregate Consumption ◽  
Policy Shocks ◽  
Tax Shocks ◽  
Tax Changes ◽  
Anticipation Effects ◽  
Tax Cuts

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)

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