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Do anticipated tax changes matter? Further evidence from the United Kingdom

By F. Bagliano


This paper provides some evidence against the rational expectations-permanent income model of consumption behaviour and the Ricardian Equivalence proposition by testing the responsiveness of spending to the implementation of pre-announced changes in income tax. Extending the work of Summer (1991), a long series of recurrent episodes of this kind is for the U.K (1960-1990) is examined. It is found that consumption expenditure strongly reacts to (pre-announced) fiscally-induced changes in current disposable income. This effect is due to the semi-durable and durable components of spending

Topics: HJ Public Finance
Publisher: Centre for Economic Performance, London School of Economics and Political Science
Year: 1993
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Provided by: LSE Research Online
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