How Is Tax Policy Conducted over the Business Cycle?

It is well known by now that government spending has typically been procyclical in developing economies but acyclical or countercyclical in industrial countries. Little, if any, is known, however, about the cyclical behavior of tax rates (as opposed to tax revenues, which are endogenous to the business cycle and, hence, cannot shed light on the cyclicality of tax policy). We build a novel dataset on tax rates for 62 countries for the period 1960-2013 that comprises corporate income, personal income, and value-added tax rates. We find that tax policy is acyclical in industrial countries but mostly pro cyclical in developing countries. (JEL E32, E64, H24, H25, O11, O23)