Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/245884 
Year of Publication: 
2020
Series/Report no.: 
Quaderni - Working Paper DSE No. 1142
Publisher: 
Alma Mater Studiorum - Università di Bologna, Dipartimento di Scienze Economiche (DSE), Bologna
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.
Subjects: 
Fiscal shocks
tax multipliers
business cycle
local projections
JEL: 
E32
E62
H20
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Working Paper

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