Samara Gunter, Daniel Riera-Crichton, Carlos Vegh, Guillermo Vuletin, 01 May 2019

Based on evidence from the industrial world, and particularly Europe, tax hikes have a significant negative effect on economic activity. The column shows that this empirical finding does not hold for a broader sample. In the developing world, higher taxes may be an effective way to raise revenues without reducing GDP. This is especially true in countries with low provision of public goods or commodity-dependent countries.

Karel Mertens, Morten Ravn, 19 June 2012

“There are known unknowns; that is to say there are things that we now know we don’t know”. So said former US defence secretary Donald Rumsfeld. He was talking about the Iraq war but in the debate over fiscal policy, one ‘known unknown’ is the tax multiplier. This column tries to make it a known known.

Carlo Favero, Francesco Giavazzi, 10 September 2009

Christina and David Romer have recently produced new estimates of the tax multiplier by using the narrative record to identify exogenous tax changes. This column says that their estimates assume that tax changes are orthogonal to shifts in other macroeconomic variables, such as productivity, taxes, and monetary policy. Relaxing that assumption yields much smaller estimates of the tax multiplier.

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