NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

How is Tax Policy Conducted over the Business Cycle?

Carlos A. Vegh, Guillermo Vuletin

NBER Working Paper No. 17753
Issued in January 2012, Revised in December 2014
NBER Program(s):IFM

It is well known by now that government spending has typically been procyclical in developing economies but acyclical or countercyclical in industrial countries. Little, if any, is known, however, about the cyclical behavior of tax rates (as opposed to tax revenues, which are endogenous to the business cycle and hence cannot shed light on the cyclicality of tax policy). We build a novel dataset on tax rates for 62 countries for the period 1960-2013 that comprises corporate income, personal income, and value-added tax rates. We find that, by and large, tax policy is acyclical in industrial countries but mostly procyclical in developing countries. Further, tax policy in countries with better institutions and/or more integrated with world capital markets tends to be less procyclical/more countercyclical.

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Document Object Identifier (DOI): 10.3386/w17753

Published: Carlos A. Vegh & Guillermo Vuletin, 2015. "How Is Tax Policy Conducted over the Business Cycle?," American Economic Journal: Economic Policy, American Economic Association, vol. 7(3), pages 327-70, August. citation courtesy of

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