The macroeconomic effects of income and consumption tax changes

Nguyen, Anh D. M., Onnis, Luisanna and Rossi, Raffaele 2021. The macroeconomic effects of income and consumption tax changes. American Economic Journal: Economic Policy 13 (2) , pp. 439-466. 10.1257/pol.20170241

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Abstract

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.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Publisher:	American Economic Association
ISSN:	1945-7731
Date of First Compliant Deposit:	5 May 2022
Last Modified:	05 Dec 2024 15:45
URI:	https://orca.cardiff.ac.uk/id/eprint/149459

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