TY - UNPB
T1 - The impact of income tax changes on government revenue
T2 - Moving beyond the Laffer curve
AU - McManus, Richard
AU - Ozkan, Gulcin
AU - Trzeciakiewicz, Dawid
PY - 2021/4
Y1 - 2021/4
N2 - How do tax revenues respond to changes in tax rates? We show that the answer to this question crucially depends on the level of marginal tax rates and the size of fiscal multipliers. We first estimate the revenue impact of tax shocks in a wide range of existing empirical frameworks, using data from the US, the UK, Germany and, separately, from a sample of OECD countries. We find that tax multipliers are consistently large and tax revenues fall in response to tax rises; and this effect is particularly strong when marginal taxes are raised. We then incorporate the wedge between the marginal and the average tax rates into a number of standard general equilibrium models, reconciling a major discrepancy between the theoretical and empirical work on fiscal multipliers.
AB - How do tax revenues respond to changes in tax rates? We show that the answer to this question crucially depends on the level of marginal tax rates and the size of fiscal multipliers. We first estimate the revenue impact of tax shocks in a wide range of existing empirical frameworks, using data from the US, the UK, Germany and, separately, from a sample of OECD countries. We find that tax multipliers are consistently large and tax revenues fall in response to tax rises; and this effect is particularly strong when marginal taxes are raised. We then incorporate the wedge between the marginal and the average tax rates into a number of standard general equilibrium models, reconciling a major discrepancy between the theoretical and empirical work on fiscal multipliers.
M3 - Working paper
BT - The impact of income tax changes on government revenue
ER -