Research

JOB MARKET PAPER       

"The Macroeconomic Effects of Tax Policy Surprises"  SSRN 

I exploit new digitalized data on Federal Reserve expectations of tax receipts to construct an instrumental variable for the identification of tax policy surprise shocks. The instrument isolates tax rate forecast revisions around narratively identified tax legislative changes; the higher frequency of Greenbook reports provides finer control for fiscal foresight than standard quarterly approaches. I found that expansionary tax rate shocks have permanent positive effects on real GDP, personal consumption, total investments, federal spending and triggers fiscal deflation by lower marginal costs and higher productivity. Results are robust across information set, estimation strategy, temporal aggregation and the generated regressor problem. Unlike Romer and Romer (2010) pure narrative approach, the new instrument preserves its statistical power beyond the 1950s and allows a much more efficient estimation of the macroeconomic effects of tax shocks.