Master's Thesis

The Master's Thesis of Economic Policy student Aleksandar Bosnjak investigates whether the effects of a tax shocks differ according to the private debt state of the economy.

Aleksandar: 'By using state-dependent local projections and Mertens and Ravn (2012) exogenous unanticipated tax shocks on quarterly U.S. data for 1947 to 2007, I find significant evidence that the consequences of tax shocks depend on the private debt level. Tax increases lead to a strong and long-lasting fall in output, consumption and investment during private debt overhang episodes. In contrast, when private debt is low, there is no significant effect following a tax increase.'

These results are robust to alternative definitions of private debt and lags in the tax shock series.