The output effects of tax changes: narrative evidence from Spain

• Main Authors: Paula Gil, Francisco Martí, Richard Morris, Javier J. Pérez, Roberto Ramos
• Format: Article
• Language: English
• Published: SpringerOpen 2018-01-01
• Series: SERIEs: Journal of the Spanish Economic Association
• Subjects: Tax shocks; Narrative record; Fiscal policy; GDP growth
• Online Access: http://link.springer.com/article/10.1007/s13209-018-0173-5

Abstract This paper estimates the GDP impact of legislated tax changes in Spain using a newly constructed narrative record for the period 1986–2015. Our baseline estimates suggest that a 1% of GDP increase in exogenous taxes depresses output by around 1.3% after 1 year, this negative effect fading away at more distant horizons. We also find that the effects of changes in indirect taxes are larger and that, following a tax increase, investment reacts more than consumption. Overall, our set of estimates is consistent with negative output effects triggered by tax increases, yet the quantitative effects are subject to non-negligible uncertainty that is reflected in wide confidence bands, in line with the extant literature for other countries.