Discretionary tax shocks in the United Kingdom 1945-2009: a narrative account and dataset

Cloyne, James S (2010): Discretionary tax shocks in the United Kingdom 1945-2009: a narrative account and dataset.

Abstract

This paper constructs a narrative account of all legislated discretionary policy changes in the United Kingdom from 1945 to 2009. Following Romer and Romer (2009, 2010), evidence of the policymakers’ motivation is presented from U.K. official Budget documents together with technical notes, press releases, Acts of Parliament, the Budget speech by the Chancellor of the Exchequer and related entries in the parliamentary record (Hansard). The historical context in which the decision was made is also discussed. Using the given motives I isolate tax policy changes which were not responding to, or influenced by, current or prospective economic shocks. This ‘exogenous’ category is comprised of actions to improve long-run economic performance, those motivated by ideological or political reasons, rulings from external bodies such as courts, and fiscal consolidation measures based on long-run considerations. By contrast, the ‘endogenous’ changes are actions to manage demand, to stimulate production, to offset a debt crisis and those to fund spending decisions. For all the tax changes I collect information on the announcement, implementation and withdrawal dates as well as the type of the tax (such as income tax). The dataset contains nearly 2,500 tax changes and is aggregated into a quarterly series for analysis. In addition to creating a novel dataset this paper also contributes to the post-war history of U.K. taxation.

• Item Type: MPRA Paper
• Language: English
• Keywords: fiscal policy, tax shocks, tax multiplier, narrative approach, business cycles, tax data, economic history
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; N - Economic History > N1 - Macroeconomics and Monetary Economics ; Industrial Structure ; Growth ; Fluctuations > N10 - General, International, or Comparative; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H20 - General; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E20 - General

References

Blanchard, O., and Perotti, R. (2002). “An empirical characterization of the dynamic effects of changes in government spending and taxes on output.” Quarterly Journal of Economics, 117, 1329-1368.

Britton, A. (1991) “Macroeconomic policy in Britain 1974-87”. Cambridge University Press.

Cairncross, A. (1992) “The British Economy Since 1945”. Blackwell Publishers.

Cairncross, A. (1994) “Economic Performance and Policy 1964-1990” in Floud, R. and McCloskey, D.

“The Economic History of Britain since 1700 Volume 3 (Second Edition)”. Cambridge University Press.

Cloyne, J. (2011) “What are the effects of tax changes in the United Kingdom? New evidence from a narrative evaluation.” CESifo Working Paper No. 3433

Copey, R. and Woodward, N. (1996) “Britain in the 1970s: The Troubled Economy”. Routledge Publishers.

Dow, C. (1964) “The management of the British economy 1945-60”. The Syndics of the Cambridge University Press.

Institute for Fiscal Studies (2009) “A Survey of the UK Tax System”, Briefing Note No. 9.

Ramey, V. A. (2008). “Identifying government spending shocks: It's all in the timing.” Working Paper.

Ramey, V., and Shapiro, M. (1998). “Costly capital reallocation and the effects of government spending." Carnegie Rochester Conference Series on Public Policy, 48, 145-194.

Romer, C., and Romer, D. (1989). “Does monetary policy matter? A new test in the spirit of Friedman and Schwartz.” In NBER Macroeconomic Annual 1989.

Romer, C., and Romer, D. (2004). “A new measure of monetary shocks: Derivation and implications.” American Economic Review, 94(4), pp. 1055-84

Romer, C. and Romer, D. (2009) “A Narrative Analysis of Postwar Tax Changes”. Available from the authors’ website.

Romer, C. and Romer, D. (2010) “The macroeconomic effects of tax changes: Estimates based on a new measure of fiscal shocks”. American Economic Review, 100(June), pp. 763-801.

UK Parliament (2000), “Select Committee on Social Security Fifth Report”. House of Commons.