Department of Economics and Business Economics

Explaining output volatility: The case of taxation

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This paper presents strong empirical evidence that the observed heterogeneity of output volatility across countries and over time is partly endogenous. In particular, based on a closed-form solution we obtain a (long-run) equilibrium relationship between taxes and output volatility in the stochastic neoclassical growth model by showing that asymptotically the variance of output growth rates is affected by the level of taxes, without affecting the mean. We estimate the tax semi-elasticities on output volatility and provide convincing empirical evidence that taxes are important to understand differences in output volatility among OECD countries.
Original languageEnglish
JournalJournal of Public Economics
Volume95
Issue11-12
Pages (from-to)1589-1606
Number of pages18
ISSN0047-2727
DOIs
Publication statusPublished - 2011

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