Policy Implications of Non-Linear Effects of Tax Changes on Output

In an earlier paper, titled Non-linear effects of tax changes on output: The role the initial level taxation, we estimated multipliers using (i) a novel dataset value-added taxes for 51 countries (21 industrial and 30 developing) period 1970-2014, (ii) so-called narrative approach developed by Romer (2010) to properly identify exogenous changes. main finding is that, in line with existing theoretical distortionary disincentive-based arguments, effect output highly non-linear. multiplier essentially zero under relatively low/moderate rate levels more negative as size change increase. This companion paper first shows that these findings have important policy implications, given varies greatly across thus so will potential changing rates. then turns some specific applications. It focuses relevance arguments revenue mobilization low provision public goods social infrastructure gaps, well commodity-dependent countries. considers practical implications standard debt sustainability analysis. Lastly, it evaluates Laffer curve. Institutional subscribers NBER working series, residents developing may download this without additional charge at www.nber.org.