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Title:What are the effects of tax changes in the United Kingdom? New evidence from a narrative evaluation PDF Logo
Authors:Cloyne, James
Issue Date:2011
Series/Report no.:CESifo working paper: Fiscal Policy, Macroeconomics and Growth 3433
Abstract:This paper estimates the effects of tax changes on the U.K. economy. Identification is achieved by isolating the 'exogenous' tax policy shocks in the post-war U.K. economy using a narrative strategy as in Romer and Romer (2010). The resulting tax changes are shown to be unforecastable on the basis of past macroeconomic data. I find that a 1 per cent cut in taxes stimulates GDP by 0.6 per cent on impact and by 2.5 per cent over three years. These findings are remarkably similar to the corresponding estimates for the United States. The results reinforce the view that tax changes do indeed have powerful, persistent and significant effects on the economy. Finally, 'exogenous' tax changes are shown to have contributed to major episodes in the U.K. business cycle.
Subjects:fiscal policy
tax shocks
tax multiplier
narrative approach
business cycles
JEL:E20
E32
E62
H20
N10
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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