By Christina D. Romer and David H. Romer
American Economic Review 100 (June 2010): 763–801

Abstract:This paper investigates the impact of tax changes on economic activity. We
use the narrative record, such as presidential speeches and Congressional
reports, to identify the size, timing, and principal motivation for all major post-
war tax policy actions. This analysis allows us to separate legislated changes
into those taken for reasons related to prospective economic conditions and
those taken for more exogenous reasons. The behavior of output following these
more exogenous changes indicates that tax increases are highly contractionary.
The effects are strongly significant, highly robust, and much larger than those
obtained using broader measures of tax changes.