Do Tax Increases Tame Inflation?

Cloyne, James, Martinez, J, Mumtaz, Haroon and Surico, P (2023) Do Tax Increases Tame Inflation? AEA Papers and Proceedings, 113. pp. 377-381. ISSN 2574-0776 OPEN ACCESS

Abstract

The answer is “yes” for personal income taxes but “no” for corporate income taxes. Using narrative-identified US federal tax changes post-World War II and disaggregated sectoral data on consumer and producer prices, we show that higher average personal income tax rates lower prices across a broad range of sectors, but higher average corporate tax rates do not. There is also significant sectoral heterogeneity in the size of the effects. Finally, only personal tax increases lower inflation expectations, while corporate tax increases lead to persistent declines in stock prices. Our results are consistent with personal taxes affecting aggregate demand and corporate taxes persistently affecting supply conditions.

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Item Type: Article
Subject Areas: Economics
Date Deposited: 04 Jul 2023 14:35
Date of first compliant deposit: 07 Jul 2023
Last Modified: 22 Feb 2024 02:56
URI: https://lbsresearch.london.edu/id/eprint/2903
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