Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/244354 
Year of Publication: 
2021
Series/Report no.: 
MAGKS Joint Discussion Paper Series in Economics No. 25-2021
Publisher: 
Philipps-University Marburg, School of Business and Economics, Marburg
Abstract: 
We study state-dependent effects of narratively identified tax shocks in Germany and the UK over the period 1974Q1-2018Q4 using local projections. In addition, we distinguish between aggregated and disaggregated tax types (direct and indirect taxes) as well as look for possible asymmetries between tax hikes and tax cuts. We find a number of differences across the business cycle, and between sample countries, tax types, and direction of tax changes. For instance, aggregated tax cuts initially have a larger effect during times of nonrecession in Germany, whereas we find no state-dependent effects for the UK. When disaggregating tax types, German indirect tax cuts only appear expansionary during downturns, whereas the effect is positive throughout the business cycle in the UK. Furthermore, we find different reactions when considering tax cuts and hikes individually: tax hikes can be expansionary in Germany (UK) when implemented during non-recessionary (recessionary) periods whereas they are contractionary during recessions (non-recessions). When considering tax cuts, German GDP rises only when cuts are enacted in times of non-recession, whereas in the UK, the reactions is positive in either case and mostly symmetric. All these findings are robust to various changes in the econometric setup.
Subjects: 
Fiscal policy
tax policy
legislated tax changes
state dependence
direct taxes
indirect taxes
asymmetric effects
Germany
United Kingdom
local projections
narrative approach
JEL: 
E62
E63
H20
H30
K34
Document Type: 
Working Paper

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