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

We study the announcement effect of legislated tax changes on GDP in the US, Germany, and the UK. Using, as the shock of interest, narratively identified information about future tax changes at the quarter of their introduction to the legislative body, we analyse the dynamic results of Local Projections. After drafting tax cuts, economic activity declines (increases) in the US (the UK), but remains unaffected in Germany. When allowing the responses to vary over the business cycle, we find evidence that US GDP drops regardless of the business cycle, whereas UK GDP rises only during non-recessionary times. German GDP rises (drops) during recessions (non-recessions). (C) 2022 Elsevier B.V. All rights reserved.

Automated summary

This study examines the announcement effect of legislated tax changes on GDP in the US, Germany, and the UK. The results indicate that economic activity declines (increases) in the US (the UK) after tax cuts are implemented, while Germany remains unaffected. Furthermore, the analysis shows that US GDP drops regardless of the business cycle, while UK GDP only rises during non-recessionary times, and German GDP rises (drops) during recessions (non-recessions).