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Unpleasant surprises? Elections and tax news shocks

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  • David, Antonio C.
  • Sever, Can

Abstract

Unanticipated changes in tax policy are likely to have different macroeconomic effects compared to anticipated changes due to several mechanisms. It is therefore important to understand what drives such policy surprises. We explore the nature of unanticipated tax policy changes by focusing on a political economy determinant of those events, namely the timing of elections. Using monthly data for 22 advanced economies and emerging markets over the period 1990-2018, we show that implementation lags tend to be longer for tax policy change announcements that are made during pre-election periods, thereby leading to a lower likelihood of ”tax news shocks”. We also find that implementation lags become much shorter for tax policy changes that are announced in the aftermath of elections. This pattern remains similar for different tax measures and types of taxes. The findings are robust to a number of checks, including controlling for various economic, institutional and political factors.

Suggested Citation

  • David, Antonio C. & Sever, Can, 2025. "Unpleasant surprises? Elections and tax news shocks," European Journal of Political Economy, Elsevier, vol. 86(C).
    • Handle: RePEc:eee:poleco:v:86:y:2025:i:c:s0176268024001241
    DOI: 10.1016/j.ejpoleco.2024.102622
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    More about this item

    Keywords

    Tax shocks; Electoral cycles; Political economy;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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