Lecture 5 Slides - Economics 210c/236a Fall 2011 Christina...

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L ECTURE 5 The Effects of Fiscal Changes: Taxes and Fiscal Consolidations September 28, 2011 Economics 210c/236a Christina Romer Fall 2011 David Romer
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I. R OMER AND R OMER , “T HE M ACROECONOMIC E FFECTS OF T AX C HANGES : E STIMATES B ASED ON A N EW M EASURE OF F ISCAL S HOCKS
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Background: Blanchard and Perotti A VAR with Y, G, cyclically-adjusted T. G and cyclically-adjusted T assumed not to respond to Y within the quarter. More precisely: Shocks to G and cyclically-adjusted T assumed uncorrelated with present and future shocks to Y.
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Framework (1) where Y is real GDP and Δ T is a measure of legislated tax changes. (2) (3) where the ω ’s are additional influences on tax policy.
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Framework (cont.) These imply (4) We can rewrite this as: (5) where
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Classifying Motivation Endogenous Countercyclical Spending-driven Exogenous Deficit-driven For long-run growth
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Figure 1 New Measure of Fiscal Shocks b. Long-Run and Deficit-Driven Tax Changes -4 -3 -2 -1 0 1 2 3 1945-I 1947-I 1949-I 1951-I 1953-I 1955-I 1957-I 1959-I 1961-I 1963-I 1965-I 1967-I 1969-I 1971-I 1973-I 1975-I 1977-I 1979-I 1981-I 1983-I 1985-I 1987-I 1989-I 1991-I 1993-I 1995-I 1997-I 1999-I 2001-I 2003-I 2005-I 2007-I Percent of GDP Long-Run Tax Changes Deficit-Driven Tax Changes From: Romer and Romer, “The Macroeconomic Effects of Tax Changes”
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Figure 3 Comparing New Measure of Tax Changes and Cyclically Adjusted Revenues a. Exogenous Tax Changes and the Change in Cyclically Adjusted Revenues -4 -3 -2 -1 0 1 2 3 1947-II 1949-II 1951-II 1953-II 1955-II 1957-II 1959-II 1961-II 1963-II 1965-II 1967-II 1969-II 1971-II 1973-II 1975-II 1977-II 1979-II 1981-II 1983-II 1985-II 1987-II 1989-II 1991-II 1993-II 1995-II 1997-II 1999-II 2001-II 2003-II 2005-II 2007-II Percent of GDP Change in Cyclically Adjusted Revenues Exogenous Tax Changes From: Romer and Romer, “The Macroeconomic Effects of Tax Changes”
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Figure 3 Comparing New Measure of Tax Changes and Cyclically Adjusted Revenues b. All Legislated Tax Changes and the Change in Cyclically Adjusted Revenues -4 -3 -2 -1 0 1 2 3 1947-II 1949-II 1951-II 1953-II 1955-II 1957-II 1959-II 1961-II 1963-II 1965-II 1967-II 1969-II 1971-II 1973-II 1975-II 1977-II 1979-II 1981-II 1983-II 1985-II 1987-II 1989-II 1991-II 1993-II 1995-II 1997-II 1999-II 2001-II 2003-II 2005-II 2007-II Percent of GDP Change in Cyclically Adjusted Revenues All Legislated Tax Changes From: Romer and Romer, “The Macroeconomic Effects of Tax Changes”
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1. 2.
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This note was uploaded on 02/28/2012 for the course ECON 210c taught by Professor Romer,c during the Fall '08 term at University of California, Berkeley.

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Lecture 5 Slides - Economics 210c/236a Fall 2011 Christina...

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