In a novel study, Romer and Romer (2010) use the
narrative record from Presidential speeches, executivebranch
documents, and Congressional reports to identify
the size, timing, and principal motivation for all major
tax policy actions in the post-World War II United States.
Focusing on tax changes made to promote long-run
growth or to reduce an inherited budget deficit, rather
than tax changes made for other reasons, they find that
tax changes have large and persistent effects, with a
tax increase of 1 percent of GDP lowering real GDP by
roughly 2 to 3 percent. The impacts are rapid enough –
with effects taking place over the first few quarters – to
suggest an aggregate demand response, but they are
also long-lived enough – with the effects lasting through
20 quarters—to suggest that supply-side responses are at
work as well. However, more recent work has questioned
the robustness of these results