The Romers of Berkeley, on fiscal policy

…tax increases are highly contractionary.  The effects are strongly
significant, highly robust, and much larger than those obtained using
broader measures of tax changes.  The large effect stems in considerable
part from a powerful negative effect of tax increases on investment.  We
also find that legislated tax increases designed to reduce a persistent
budget deficit appear to have much smaller output costs than other tax

Their work is of the very highest quality, and not to be confused with many of the more dubious claims made about taxation and investment.  In particular they make a point of isolating exogenous changes in the tax code.  Here is the paper.  Here is a non-gated version.


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