A factor-augmented VAR approach : the effect of a rise in the US personal income tax rate on the US and Canada

Lagana, Gianluca and Sgro, Pasquale 2011, A factor-augmented VAR approach : the effect of a rise in the US personal income tax rate on the US and Canada, Economic modelling, vol. 28, no. 3, pp. 1163-1169.

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Title A factor-augmented VAR approach : the effect of a rise in the US personal income tax rate on the US and Canada
Author(s) Lagana, Gianluca
Sgro, Pasquale
Journal name Economic modelling
Volume number 28
Issue number 3
Start page 1163
End page 1169
Total pages 7
Publisher Elsevier
Place of publication Amsterdam, The Netherlands
Publication date 2011-05
ISSN 0264-9993
1873-6122
Keyword(s) Factor model
principal component
personal income taxes
VAR
Summary In this paper a factor-augmented vector autoregressive (FAVAR) model is estimated to characterize the dynamic effects of shocks in the personal income tax rate in the United States on United States and Canadian economies. The representation and the estimate of the FAVAR model is based on Stock and Watson (2005) and the shocks are recovered applying the identification scheme proposed by Bernanke et al. (2005); this method allows impulse response functions to be generated for all the variables in the dataset and provides a description of the domestic and international transmission mechanisms of United States movements in the personal income tax rate. A distinguishing feature of our model is the disaggregation of traded goods sector where imports and exports are disaggregated into 12 and 13 industries, respectively. This provides extra information on the domestic and international transmission mechanism across the two countries. The results show that the FAVAR approach generates a reasonable characterisation of the effects of United States movements in the US personal income tax rate on the United States economy and its transmission to the Canadian economy.
Language eng
Field of Research 140299 Applied Economics not elsewhere classified
Socio Economic Objective 970114 Expanding Knowledge in Economics
HERDC Research category C1 Refereed article in a scholarly journal
HERDC collection year 2011
Copyright notice ©2010, Elsevier B.V.
Persistent URL http://hdl.handle.net/10536/DRO/DU:30034369

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