Ruhr Economic Papers

Ruhr Economic Papers #852

Macroeconomic Effects of the Anticipation and Implementation of Tax Changes in Germany: Evidence from a Narrative Account

by Désirée I. Christofzik, Angela Fuest and Robin Jessen

RUB, RWI, 06/2020, 33 S./p., 8 Euro, ISBN 978-3-86788-988-9 DOI: 10.4419/86788988

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Abstract

This paper quantifies the dynamic macroeconomic effects of tax changes in Germany, allowing for anticipation effects of preannounced tax reforms. Identification is achieved using a narrative approach which provides information about the timing of tax reforms. For an anticipated tax shock, we find an implied peak tax multiplier after implementation of 1.7. However, this positive effect is accompanied by significantly negative anticipation effects, in particular for output, investment, and hours worked. A substantial positive impact is observed only several quarters after implementation. Our results suggest that tax policy may thus be able to exploit anticipation effects by strategically announcing policy measures.

JEL-Classification: H20, H30, E32, E62

Keywords: Fiscal policy; tax policy; anticipation effects

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