Fear of taxes

Abstract

This paper documents that Mexican households anticipated the fiscal reform of 2014 several months before enacted. This change in expectations is documented using a novel source of information available in Google Trends, among other sources. It then analyzes the economic consequences of this change using a general equilibrium growth model with taxes and uncertainty. The model also considers the presence of generic distortions in the form of wedges in the first order conditions to isolate the effect of taxation. The paper provides an explanation for the unusual trajectories of investment and GDP of the Mexican economy around 2013.