Discussion Papers 2024

CIRJE-F-1232	"The Macroeconomic Effect of Tax Shocks New Narrative Evidence from Japan"
Author Name	Mochida, Nobuki
Date	August 2024
Full Paper	PDF file
Remarks

Abstract
This study constructs a new dataset on tax shocks from the ground up and, for the first time, estimates the tax multiplier in Japan using a narrative approach pioneered by Romer and Romer (2010). Out of 104 tax reforms during the post-war period from 1955 to 2023, I identified 588 discretionary tax changes, categorizing 401 as exogenous and 187 as endogenous. The impact of tax changes on output is large and persistent, with typical SVAR estimates being smaller. The study finds that a 1 percent tax change leads to an initial 1.5 percent decline in output, peaking at a 3.6 percent decrease within three years. These findings are comparable to those for the U.S. and U.K.
Keywords: tax multiplier, narrative approach, exogenous tax changes, Japan

Abstract

This study constructs a new dataset on tax shocks from the ground up and, for the first time, estimates the tax multiplier in Japan using a narrative approach pioneered by Romer and Romer (2010). Out of 104 tax reforms during the post-war period from 1955 to 2023, I identified 588 discretionary tax changes, categorizing 401 as exogenous and 187 as endogenous. The impact of tax changes on output is large and persistent, with typical SVAR estimates being smaller. The study finds that a 1 percent tax change leads to an initial 1.5 percent decline in output, peaking at a 3.6 percent decrease within three years. These findings are comparable to those for the U.S. and U.K.

Keywords: tax multiplier, narrative approach, exogenous tax changes, Japan