Discretionary Tax Changes and Macroeconomic Activity: New Narrative Evidence from Australia*

2025/06/11 by Changchen Ge · 1 voice
Economics, Econometrics and Finance · Business, Management and Accounting · #Fiscal Policy and Economic Growth #Taxation and Compliance Studies #Financial Literacy, Pension, Retirement Analysis

paper · pdf · doi:10.1111/1475-4932.12890

openalex publication_date 2025/06/11 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/26

Abstract

This paper investigates the effects of discretionary tax changes on economic activity in Australia. Using official records, including Budget Reports and Election Speeches, I construct a narrative‐based dataset that identifies the revenue impact, timing and motivation of all major Commonwealth tax policy changes from 1983Q4 to 2018Q4. This approach enables the identification of legislated tax changes that are unrelated to contemporaneous economic conditions. To estimate their macroeconomic effects, I use unanticipated exogenous tax changes as an instrument for tax revenue. The results indicate that tax cuts stimulate economic activity in the short run through consumption and investment; however, these gains are offset within 2 years due to contractionary monetary policy and a deterioration in the trade balance.

Citations

• Statistical inference in vector autoregressions with possibly integrated processes
• Estimation and Inference of Impulse Responses by Local Projections
• The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks
• Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks
• Local Projections and VARs Estimate the Same Impulse Responses

Discussions

• New paper on the effects of Australian tax changes using a narrative identification. The paper is available here at Economic Record. doi.org/10.1111/1475... [bsky, 0 points, 0 comments]