Tax news in good and bad times

We investigate whether the effect of tax news depends on the state of the economy. Using U.S. quarterly data, we show that news about future tax cuts are more contractionary during recessions. This nonlinearity is mainly due to the response of durable consumption and, especially, nonresidential investment. (C) 2021 Elsevier B.V. All rights reserved.

Automated summary

Research shows that the impact of tax news on the economy depends on the state of the economy, with news about future tax cuts being more contractionary during recessions. This nonlinearity is primarily due to the responses of durable consumption and, especially, nonresidential investment.