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  3. American Economic Review
  4. June 2013
  5. Discretionary Tax Changes and the Macroeconomy: New Narrative Evidence from the United Kingdom

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Discretionary Tax Changes and the Macroeconomy: New Narrative Evidence from the United Kingdom

  • James Cloyne
American Economic Review
vol. 103, no. 4, June 2013
(pp. 1507–28)
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Abstract

This paper provides new estimates of the macroeconomic effects of tax changes using a new narrative dataset for the United Kingdom. Identification is achieved by isolating "exogenous" tax policy changes using the Romer and Romer narrative strategy. I find that a 1 percent cut in taxes increases GDP by 0.6 percent on impact and 2.5 percent over three years. The findings are remarkably similar to Romer and Romer narrative estimates for the United States, reinforcing the view that tax changes have powerful and persistent effects. "Exogenous" tax changes are also shown to have contributed to important episodes in the UK business cycle.

Citation

Cloyne, James. 2013. "Discretionary Tax Changes and the Macroeconomy: New Narrative Evidence from the United Kingdom." American Economic Review, 103 (4): 1507–28. DOI: 10.1257/aer.103.4.1507

Additional Materials

JEL Classification

  • E23 Macroeconomics: Production
  • E32 Business Fluctuations; Cycles
  • E62 Fiscal Policy
  • H20 Taxation, Subsidies, and Revenue: General
  • H61 National Budget; Budget Systems