The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks
2010/06/01 by Christina D Romer, Christina Romer, David H Romer +1 · 2,118 citations
Economics, Econometrics and Finance · #Direct tax #Econometrics #Economics #Fiscal Policies and Political Economy #Fiscal Policy and Economic Growth #Fiscal policy #Indirect tax #Macroeconomics #Monetary Policy and Economic Impact #Monetary economics #Political science #Presidential system #Principal (computer security) #Public economics #Tax reform #Value-added tax
paper · doi:10.1257/aer.100.3.763
published in American Economic Review 100(3), 763-801 (American Economic Association)
openalex publication_date 2010/06/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/04
Abstract
This paper investigates the impact of tax changes on economic activity. We use the narrative record, such as presidential speeches and Congressional reports, to identify the size, timing, and principal motivation for all major postwar tax policy actions. This analysis allows us to separate legislated changes into those taken for reasons related to prospective economic conditions and those taken for more exogenous reasons. The behavior of output following these more exogenous changes indicates that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes. (JEL E32, E62, H20, N12)
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