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  4. July 2019
  5. The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States: Comment

American Economic Review

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

The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States: Comment

  • Carsten Jentsch
  • Kurt G. Lunsford
American Economic Review
vol. 109, no. 7, July 2019
(pp. 2655–78)
See also: Original paper by Mertens and Ravn (2014)
See also: Reply by Mertens and Ravn (2019)

 

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Abstract

Mertens and Ravn (2013) estimate impulse response functions (IRFs) from income tax changes in a structural vector autoregression (SVAR) by using narrative accounts of tax liability changes as proxy variables. To produce confidence intervals for their IRFs, they use a residual-based wild bootstrap, which has subsequently become popular in the proxy SVAR literature. We argue that their wild bootstrap is not valid, producing confidence intervals that are much too small. Using a residual-based moving block bootstrap that is proven to be asymptotically valid, we reestimate confidence intervals for Mertens and Ravn's (2013) IRFs and find no statistically significant effects of tax changes on output, labor, and investment.

Citation

Jentsch, Carsten, and Kurt G. Lunsford. 2019. "The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States: Comment." American Economic Review, 109 (7): 2655–78. DOI: 10.1257/aer.20162011

Additional Materials

JEL Classification

  • E23 Macroeconomics: Production
  • E62 Fiscal Policy
  • H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
  • H25 Business Taxes and Subsidies including sales and value-added (VAT)
  • H31 Fiscal Policies and Behavior of Economic Agents: Household
  • H32 Fiscal Policies and Behavior of Economic Agents: Firm