We estimate government spending and tax multipliers in the United States via a flexible proxy-SVAR model, where identification is achieved by combining fiscal and non-fiscal instruments with additional parametric restrictions. We find that, while the spending multiplier is robustly estimated to be larger than one across different models, the estimate of the tax multiplier is sensitive to the combination of instruments that we use. We unveil that the key factor behind these heterogeneous estimates is the assumption of orthogonality between total factor productivity (our main non-fiscal proxy) and the tax shock. If this assumption is imposed, the tax multiplier is around one. If it is not imposed, the tax multiplier is three times as large. Our results point to the need of accounting for the large uncertainty surrounding the tax multiplier for the design of optimal fiscal policies.

Are Fiscal Multipliers Estimated with Proxy-SVARs Robust?*

Caggiano G.;Castelnuovo E.;
2023

Abstract

We estimate government spending and tax multipliers in the United States via a flexible proxy-SVAR model, where identification is achieved by combining fiscal and non-fiscal instruments with additional parametric restrictions. We find that, while the spending multiplier is robustly estimated to be larger than one across different models, the estimate of the tax multiplier is sensitive to the combination of instruments that we use. We unveil that the key factor behind these heterogeneous estimates is the assumption of orthogonality between total factor productivity (our main non-fiscal proxy) and the tax shock. If this assumption is imposed, the tax multiplier is around one. If it is not imposed, the tax multiplier is three times as large. Our results point to the need of accounting for the large uncertainty surrounding the tax multiplier for the design of optimal fiscal policies.
File in questo prodotto:
Non ci sono file associati a questo prodotto.
Pubblicazioni consigliate

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11577/3506670
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 4
  • ???jsp.display-item.citation.isi??? 4
  • OpenAlex ND
social impact