Unpleasant Surprises? Elections and Tax News Shocks

IMF Working Papers, June 30, 2023

Source details

Research question: how the timing of elections affects the nature of unanticipated tax policy changes (“tax news shocks”).
Key approach: monthly data for 22 advanced economies and emerging markets over the period 1990-2018.
Principal conclusion: implementation lags for tax policy change announcements vary with election timing, altering the likelihood of tax news shocks.

Implementation lags tend to be significantly longer for tax policy change announcements made during pre-election periods, leading to a lower likelihood of “tax news shocks”.
Implementation lags become much shorter for tax policy changes announced in the aftermath of elections, generating more frequent tax news shocks.
The pattern — longer pre-election lags and shorter post-election lags — remains similar across different tax measures and types of taxes.
Results are robust to:
- alternative definitions of tax news shocks;
- controlling for various economic and institutional factors.

Sample: monthly observations.
Coverage: 22 advanced economies and emerging markets.
Time span: 1990-2018.
Methods referenced: econometric analysis using Probit models (as indicated in subject/keywords).

Political-timing considerations matter for the macroeconomic effects of tax policy because anticipated versus unanticipated tax changes operate through mechanisms such as fiscal foresight and policy uncertainty.
Election timing systematically alters the implementation lag of tax policy announcements, which in turn changes the incidence of tax news shocks that can affect macroeconomic outcomes.

Source: Unpleasant Surprises? Elections and Tax News Shocks, IMF Working Papers 2023, 139 (2023), Antonio David and Can Sever.