When are tax multipliers large?

Alexander Ziegenbein

Journal of Economic Dynamics and Control, 2024, vol. 158, issue C

Abstract: I show that the US tax multiplier depends on the direction of the tax change. The tax multiplier is significantly larger (in absolute value) for tax hikes than for tax cuts – regardless of whether I identify tax shocks via (i) the narrative approach or (ii) sign restrictions. The tax hike multiplier is strongly pro-cyclical, i.e., substantially larger in expansions. Variation in the tax cut multiplier over the business cycle is milder and statistically insignificant. A simple business cycle model with downward nominal wage rigidities can explain these results.

Keywords: Fiscal policy; Tax multiplier (search for similar items in EconPapers)
JEL-codes: C32 E32 E6 E62 H2 H24 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:158:y:2024:i:c:s0165188923001914

DOI: 10.1016/j.jedc.2023.104785

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