Policy Implications of Non-linear Effects of Tax Changes on Output
An earlier paper titled "Non-linear effects of tax changes on output: The role of the initial level of taxation," estimated tax multipliers using (i) a novel dataset on value-added taxes for 51 countries (21 industrial and 30 developing)...
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World Bank, Washington, DC
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| Online Access: | http://documents.worldbank.org/curated/en/158141548698817351/Policy-Implications-of-Non-linear-Effects-of-Tax-Changes-on-Output http://hdl.handle.net/10986/31188 |
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okr-10986-311882022-05-21T06:14:33Z Policy Implications of Non-linear Effects of Tax Changes on Output Gunter, Samara Riera-Crichton, Daniel Vegh, Carlos Vuletin, Guillermo TAX MULTIPLIER TAX POLICY TAX RATE VALUE ADDED TAX ECONOMIC GROWTH LAFFER CURVE An earlier paper titled "Non-linear effects of tax changes on output: The role of the initial level of taxation," estimated tax multipliers using (i) a novel dataset on value-added taxes for 51 countries (21 industrial and 30 developing) for the period 1970-2014, and (ii) the so-called narrative approach developed by Romer and Romer (2010) to properly identify exogenous tax changes. The main finding is that, in line with existing theoretical distortionary and disincentive-based arguments, the effect of tax changes on output is highly non-linear. The tax multiplier is essentially zero under relatively low/moderate initial tax rate levels and more negative as the initial tax rate and the size of the change in the tax rate increase. This companion paper first shows that these findings have important policy implications, given that the initial level of taxes varies greatly across countries and thus so will the potential output effect of changing tax rates. The paper then turns to some specific policy applications. It focuses on the relevance of the arguments for revenue mobilization in countries with low levels of provision of public goods and social and infrastructure gaps, as well as in commodity-dependent countries. The paper then considers some practical implications for the standard debt sustainability analysis. Lastly, it evaluates the implications of the findings for the Laffer curve. 2019-01-31T23:52:24Z 2019-01-31T23:52:24Z 2019-01 Working Paper http://documents.worldbank.org/curated/en/158141548698817351/Policy-Implications-of-Non-linear-Effects-of-Tax-Changes-on-Output http://hdl.handle.net/10986/31188 English Policy Research Working Paper;No. 8720 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper |
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Digital Repository |
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Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
| language |
English |
| topic |
TAX MULTIPLIER TAX POLICY TAX RATE VALUE ADDED TAX ECONOMIC GROWTH LAFFER CURVE |
| spellingShingle |
TAX MULTIPLIER TAX POLICY TAX RATE VALUE ADDED TAX ECONOMIC GROWTH LAFFER CURVE Gunter, Samara Riera-Crichton, Daniel Vegh, Carlos Vuletin, Guillermo Policy Implications of Non-linear Effects of Tax Changes on Output |
| relation |
Policy Research Working Paper;No. 8720 |
| description |
An earlier paper titled "Non-linear
effects of tax changes on output: The role of the initial
level of taxation," estimated tax multipliers using (i)
a novel dataset on value-added taxes for 51 countries (21
industrial and 30 developing) for the period 1970-2014, and
(ii) the so-called narrative approach developed by Romer and
Romer (2010) to properly identify exogenous tax changes. The
main finding is that, in line with existing theoretical
distortionary and disincentive-based arguments, the effect
of tax changes on output is highly non-linear. The tax
multiplier is essentially zero under relatively low/moderate
initial tax rate levels and more negative as the initial tax
rate and the size of the change in the tax rate increase.
This companion paper first shows that these findings have
important policy implications, given that the initial level
of taxes varies greatly across countries and thus so will
the potential output effect of changing tax rates. The paper
then turns to some specific policy applications. It focuses
on the relevance of the arguments for revenue mobilization
in countries with low levels of provision of public goods
and social and infrastructure gaps, as well as in
commodity-dependent countries. The paper then considers some
practical implications for the standard debt sustainability
analysis. Lastly, it evaluates the implications of the
findings for the Laffer curve. |
| format |
Working Paper |
| author |
Gunter, Samara Riera-Crichton, Daniel Vegh, Carlos Vuletin, Guillermo |
| author_facet |
Gunter, Samara Riera-Crichton, Daniel Vegh, Carlos Vuletin, Guillermo |
| author_sort |
Gunter, Samara |
| title |
Policy Implications of Non-linear Effects of Tax Changes on Output |
| title_short |
Policy Implications of Non-linear Effects of Tax Changes on Output |
| title_full |
Policy Implications of Non-linear Effects of Tax Changes on Output |
| title_fullStr |
Policy Implications of Non-linear Effects of Tax Changes on Output |
| title_full_unstemmed |
Policy Implications of Non-linear Effects of Tax Changes on Output |
| title_sort |
policy implications of non-linear effects of tax changes on output |
| publisher |
World Bank, Washington, DC |
| publishDate |
2019 |
| url |
http://documents.worldbank.org/curated/en/158141548698817351/Policy-Implications-of-Non-linear-Effects-of-Tax-Changes-on-Output http://hdl.handle.net/10986/31188 |
| _version_ |
1764473776699867136 |