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Cyclicality of statutory tax rates

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  • Strawczynski, Michel

Abstract

Most studies on cyclical fiscal policy ignore statutory taxes due to a lack of data. In this paper I build on singular data on statutory tax rates in Israel, in order to study how they are changed by the government in expansions and recessions. After differentiating between ideological (exogenous) tax changes, to those that react to the cycle (endogenous) using Romer and Romer (2010) technique, I check whether endogenous statutory tax rates are a-cyclical or counter-cyclical, as recommended by theoretical models. I found that while direct taxes are a-cyclical, indirect taxes (and in particular VAT) are changed procyclically. A pseudo-panel analysis based on the different types of taxation and a panel analysis based on indirect taxation, show that the main reason for statutory tax changes is the existence of economic crises; this explanation is stronger than economic considerations like population or expenditure growth, legal considerations like the rigidity for changing statutory taxes, and income distribution considerations like the incidence on the bottom income decile.

Suggested Citation

  • Strawczynski, Michel, 2013. "Cyclicality of statutory tax rates," MPRA Paper 48821, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:48821
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    References listed on IDEAS

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    Cited by:

    1. Clark Granger & Yurany Hernández & Jorge Ramos & Jorge Toro & Héctor Zárate, 2018. "La postura fiscal en Colombia a partir de los ajustes a las tarifas impositivas," Borradores de Economia 1038, Banco de la Republica de Colombia.
    2. Hongsheng Fang & Minyuan He & Dandan Dang & Jun Zhang, 2020. "Endogenous cyclical corporate tax burden in China: The role of tax quotas and growth targets," The World Economy, Wiley Blackwell, vol. 43(12), pages 3314-3339, December.
    3. Kobi Braude & Karnit Flug, 2012. "The interaction between monetary and fiscal policy: insights from two business cycles in Israel," BIS Papers chapters, in: Bank for International Settlements (ed.), Fiscal policy, public debt and monetary policy in emerging market economies, volume 67, pages 205-215, Bank for International Settlements.
    4. Ignacio Lozano-Espitia & Fernando Arias-Rodríguez, Jesus Bejarano & Andres Gonzalez, Clark Granger-Castaño & Franz Hamann, Yurany Hernández-Turca & Juan Manuel Julio-Román, Martha López & Juan C. Mend, 2019. "La política fiscal y la estabilización macroeconómica en Colombia," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, issue 90, pages 1-60, April.
    5. Michel Strawczynski, 2022. "Cyclicality of Tax Expenditures: The Case of Israel," Bank of Israel Working Papers 2022.04, Bank of Israel.
    6. Momi Dahan, 2017. "Income Inequality in Israel: A Distinctive Evolution," CESifo Working Paper Series 6542, CESifo.
    7. Hongsheng Fang & Wen‐Quan Hu & Ruhua Shi & Xufei Zhang, 2023. "The Chinese‐style macroeconomic control: The role of state‐owned enterprises," The World Economy, Wiley Blackwell, vol. 46(3), pages 702-725, March.
    8. Adi Brender & Eran Politzer, 2014. "The Effect of Legislated Tax Changes on Tax Revenues in Israel," Bank of Israel Working Papers 2014.08, Bank of Israel.
    9. Carlos A. Vegh & Guillermo Vuletin, 2015. "How Is Tax Policy Conducted over the Business Cycle?," American Economic Journal: Economic Policy, American Economic Association, vol. 7(3), pages 327-370, August.

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    More about this item

    Keywords

    Cyclicality; Statutory Taxes; Crisis;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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