Opening the Red Budget Box: Nonlinear Effects of a Tax Shock in the UK

Colombo, Valentina (2020) Opening the Red Budget Box: Nonlinear Effects of a Tax Shock in the UK. Bologna: Dipartimento di Scienze economiche, p. 53. DOI 10.6092/unibo/amsacta/6331. In: Quaderni - Working Paper DSE (1142). ISSN 2282-6483.
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Abstract

This paper studies the real effects of an exogenous UK tax change in recessions and expansions. The tax shock is identified via the measure proposed by Cloyne (2013). Combining local projection techniques (Jordà, 2005) with smooth transition regressions (Granger and Teräsvirta, 1994), tax policy shock is found to affect UK macroeconomic variables depending on the phase of the business cycle the economy is when tax shock occurs. An exogenous tax cut in recessions triggers a large, persistent, positive, and statistically significant reaction in output, consumption, investment, exports, imports, and government consumption. The results suggest that the output tax multiplier is positive and above one (in absolute value) in recessions but not in expansions. The size and the sign of responses of a number of macroeconomic variables are also found to be state-contingent.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Colombo, ValentinaUniversità di Bologna0000-0003-1318-9458
Keywords
Fiscal shocks, tax multipliers, business cycle, local projections
Subjects
ISSN
2282-6483
DOI
Deposit date
11 Feb 2020 08:13
Last modified
11 Feb 2020 08:13
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