NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Samara R. Gunter

Colby College
5230 Mayflower Hill
Waterville, ME 04901

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: Colby College

NBER Working Papers and Publications

December 2019Non-Linear Effects of Tax Changes on Output: The Role of the Initial Level of Taxation
with Daniel Riera-Crichton, Carlos Vegh, Guillermo Vuletin: w26570
We estimate the effect of worldwide tax changes on output following the narrative approach developed for the United States by Romer and Romer (2010). We use a novel dataset on value-added taxes for 51 countries (21 industrial and 30 developing) for the period 1970-2014 to identify 96 tax changes. We then use contemporaneous economic records to classify such changes as endogenous or exogenous to current (or prospective) economic conditions. In line with theoretical distortionary and disincentive-based arguments — and using exogenous tax changes — we find that the effect of tax changes on output is highly non-linear. The tax multiplier is essentially zero under relatively low initial tax rate levels and more negative as the initial tax rate increases. Based on a global sample, these nov...
 
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