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

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. An anticipated cut in taxes has a positive effect on output with a peak multiplier of 1.7, not observed until nine quarters after implementation. This positive effect is accompanied by significant negative anticipation effects on output, consumption, investment, hours worked and wages. Our results suggest that policymakers should take anticipation effects into account when implementing fiscal policy measures.

Legislative tax announcements and GDP: Evidence from the United States, Germany, and the United Kingdom

“…For 'unanticipated' tax cuts, the authors find the standard result of rising GDP. Christofzik et al (2021) report similar results for Germany. Alesina et al (2015) argue that even such 'unanticipated' changes may have been informally anticipated.…”

Fiscal Policy in the Bundestag: Textual Analysis and Macroeconomic Effects

“…Allard et al (2013) andDybowski and Adämmer (2018) quantify fiscal sentiment in central bank documents and the communication of U.S. presidents. Instead, our paper is based on a much larger text corpus.2 See Hayo and Uhl (2014),Hayo and Mierzwa (2022) andChristofzik et al (2022) for similar approaches to tax policy shocks in Germany.…”