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Macroeconomic Effects of Tax Changes: Evidence from a Sample of OECD Countries

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  • Georgios Karras

    (University of Illinois, Chicago, U.S.A.)

Abstract

This paper investigates the macroeconomic effects of tax changes. Using annual data from 1870 to 2013 for a panel of seventeen OECD economies, the empirical findings show that changes in the tax rate have temporary effects on the real growth rate but permanent effects on the level of output. The tax multiplier is estimated at –0.25 for the first year and around –0.60 in the long run. The evidence shows that tax changes have much stronger effects on investment than on consumption, and that they exert only short -term influence on the interest rate. An increase in the tax rate appears to raise the price level permanently and the inflation rate temporarily, implying stronger aggregate-supply than aggregate-demand effects.

Suggested Citation

  • Georgios Karras, 2019. "Macroeconomic Effects of Tax Changes: Evidence from a Sample of OECD Countries," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 69(3), pages 111-138, July-Sept.
    • Handle: RePEc:spd:journl:v:69:y:2019:i:3:p:111-138
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    More about this item

    Keywords

    Taxes; Economic Growth; Tax multiplier;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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