“We unleashed and economic miracle by signing the biggest tax cuts in American history.”
Donald Trump, www.whithouse.gov, June 29, 2018.
“We will respond to the economic and social urgency with strong measures by cutting taxes more rapidly…”
Emmanuel Macron, CNBC, December 10, 2018.
“We are convinced that if you lower taxes, the state receives less in the first year but from the second it receives more, the money is spent and invested.”
Matteo Salvini, Bloomberg, March 18, 2019.
I wish to thank the participants of the 2nd Annual Public Finance Conference organised by the Hungarian Treasury, Daniel Daco, Zsolt Darvas, Wouter van der Wielen and two anonymous referees for useful comments. The views expressed in this paper do not necessarily reflect those of the European Commission. Any error should be attributed to the author only.
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See Barrios et al. (2018b) for cross-country and industry-level evidence on the role of mark-ups and behavioural responses to determine the direction and level of tax incidence.
Barrios et al. (2019) also includes a summary description of the EUROMOD and QUEST models focussing on the features relevant for the dynamic scoring approach.
Up to three lags of the explanatory variables are used as instruments. The Sargan test tends to corroborate the validity of the instrument sets chosen for the complete models (8) and (10).
Note that in the EUROMOD-QUEST approach most shocks do not influence population relative to the baseline assumption, therefore, GDP and GDP/capita changes are the same relative to the baseline, and one can compare the projections based on this approach with the one based on the econometric estimation using GDP per capita as dependent variable.
This is because the QUEST and econometric models each have specific baselines.