Furceri, Davide and Karras, Georgios (2010): Average tax rate cyclicality in OECD countries: A test of three fiscal policy theories.
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This paper investigates the cyclical properties of the average effective tax rate in 26 OECD countries over 1965-2003 in order to test the validity of three theories of fiscal policy: (i) the standard Keynesian theory which recommends that tax policy should be counter-cyclical, (ii) the Tax Smoothing hypothesis, which implies that changes in GDP should be uncorrelated with tax rates, and (iii) the positive theory of Battaglini and Coate (2008) which predicts that the average tax rate should be negatively correlated with GDP. Our main finding is that the correlations of tax rates with cyclical GDP are generally quite small and statistically indistinguishable from zero. This finding is quite robust and is more consistent with the implications of the Tax Smoothing hypothesis than either the recommendations of the standard Keynesian model or the predictions of Battaglini and Coate’s theory.
|Item Type:||MPRA Paper|
|Original Title:||Average tax rate cyclicality in OECD countries: A test of three fiscal policy theories|
|Keywords:||Fiscal Policy; Tax Rates; Business Cycle|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
|Depositing User:||Georgios Karras|
|Date Deposited:||19. Apr 2010 18:05|
|Last Modified:||13. Feb 2013 12:33|
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