Quantifying tax effects under policy foresight

Studies of tax effects make the conventional information assumption that changes in period- t taxes become known at t. Legislative lags, however, imply that news arrives before tax changes take place. Under policy foreknowledge, the conventional information structure is therefore misspecified. Simul...

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Bibliographic Details
Published inJournal of monetary economics Vol. 52; no. 8; pp. 1557 - 1568
Main Author Susan Yang, Shu-Chun
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.11.2005
Elsevier
Elsevier Sequoia S.A
SeriesJournal of Monetary Economics
Subjects
Econometric models
Economic models
Fiscal policy
Growth models
Macroeconomics
Mathematical methods
Monetary economics
Optimal taxation
Policy foresight
Public finance
Studies
Tax legislation
Tax policy
Time series
Time-series models
E62
Fiscal policy
C32
Time-series models
Tax policy
Policy foresight
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Summary:Studies of tax effects make the conventional information assumption that changes in period- t taxes become known at t. Legislative lags, however, imply that news arrives before tax changes take place. Under policy foreknowledge, the conventional information structure is therefore misspecified. Simulations of a standard neoclassical growth model suggest that foresight of only one quarter can distort substantially the estimates of tax effects obtained under the no-foresight assumption. Also, it is crucial to model capital and labor taxes separately: anticipated changes in these two tax policies have opposite effects on consumption, investment, labor, and output before policy realization.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0304-3932
1873-1295
DOI:10.1016/j.jmoneco.2004.09.003