Asymmetric Effects of Exogenous Tax Changes

Syed M. Hussain, Samreen Malik

    Research output: Contribution to journalArticle

    Abstract

    We study whether output responds symmetrically to tax increases and decreases in postwar US data, using the identification strategy in Romer and Romer (2010). We find evidence of important asymmetries: the output response to a tax increase is statistically insignificant, but output shows a significantly positive and permanent increase following a tax decrease. We show that this asymmetry appears to be driven by individual-income tax changes, and is transmitted to the economy through asymmetric response in aggregate consumption to tax increases and tax decreases. We also present a simple model that rationalizes our empirical findings, and illustrates how asymmetric output and consumption responses to sign-based tax changes can be generated by plausible consumption-adjustment costs.

    Original languageEnglish (US)
    Pages (from-to)268-300
    Number of pages33
    JournalJournal of Economic Dynamics and Control
    Volume69
    DOIs
    StatePublished - Aug 1 2016

    Fingerprint

    Tax
    Taxation
    Output
    Decrease
    Asymmetry
    Adjustment Costs
    Asymmetric effects
    Costs

    Keywords

    • Asymmetric Responses
    • Non-linear Impulse Responses
    • Tax Changes

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Control and Optimization
    • Applied Mathematics

    Cite this

    Asymmetric Effects of Exogenous Tax Changes. / Hussain, Syed M.; Malik, Samreen.

    In: Journal of Economic Dynamics and Control, Vol. 69, 01.08.2016, p. 268-300.

    Research output: Contribution to journalArticle

    Hussain, Syed M. ; Malik, Samreen. / Asymmetric Effects of Exogenous Tax Changes. In: Journal of Economic Dynamics and Control. 2016 ; Vol. 69. pp. 268-300.
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