Fiscal Policy Through Time-Varying Tax Rates: If and How

by Martin David David Kaufman

Time-varying tax rates, defined as tax rates that hinge on the state of the business cycle, have been used sporadically in different countries and under different circumstances. In the late sixties, for example, the U.S. Government hiked temporarily income taxes to counter the effect of fast-growing economic activity on inflation.2 On the other hand, countries such as Japan and Thailand have used in recent years temporary tax breaks to attempt to boost economic activity during times of recession. In the case of Chile, the issue of variable tax rates for counter-cyclical purposes has been in the academic and political arena for the last few years.3 In contrast with the occasional use done by some countries in exceptional circumstances, like a deep and protracted slump in economic activity, in Chile the use of variable taxes has been envisaged more as a fine-tuning policy scheme in which tax rates are adjusted according to the state of the business cycle.

54 pages, Kindle Edition

First published October 1, 2000