The Macro-Economic Effects of Raising Revenue through Different Taxes. ESRI Research Bulletin 2012/4/2

FitzGerald, John (2012) The Macro-Economic Effects of Raising Revenue through Different Taxes. ESRI Research Bulletin 2012/4/2. UNSPECIFIED.

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Abstract

All taxes have negative effects on the economy, but some taxes have particularly harmful effects on employment and GNP. A recently published article(1) considers the impact on the economy of raising revenue through three different tax instruments: a carbon tax, a lump sum tax (similar to a flat property tax) and taxes on income.2 In the article each of the three taxes were increased by a similar amount, so as to reduce government borrowing, ex ante, by around 0.5 per cent of GDP. This means that the macro-economic effects of each tax change can be directly compared. The article then analysed the medium-term macro-economic effects of these three different tax changes using the ESRI’s HERMES model of the Irish economy. In each case the results of the tax increase is compared to a “no policy change” scenario.

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