The paper presents an empirical analysis that quantifies the possible effects of a tax shock originating in the United States on domestic and foreign economic activity. We compare the effects of shocks to corporate tax rates with shocks to personal income tax rates, and compute fiscal multipliers at both domestic and international level.
In the United States, the output effect of corporate tax shocks is stronger than that of personal income tax shocks. International spillovers are in most cases positive and significant, albeit small in size. The effects are transmitted mainly through a real channel: an expansionary tax shock boosts exports in recipient economies via stronger US demand and a real exchange rate depreciation vis-à-vis the US dollar; financial channels (through long-term interest rates) also play a role.
Published in 2021 in: IMF Economic Review, v. 69, 2, pp. 325-356.
