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Tax multipliers: Pitfalls in measurement and identification

Daniel Riera-Crichton (), Carlos Vegh () and Guillermo Vuletin ()

Journal of Monetary Economics, 2016, vol. 79, issue C, 30-48

Abstract: To analyze the pitfalls in measuring and identifying tax shocks, we build a novel value-added tax rate dataset for the period 1980–2009. The problem of identification (i.e., changes in tax policy not triggered by output fluctuations) is clearly disentangled from the problem of measurement (i.e., finding a tax policy variable under the direct control of policymakers). On the identification front, our results favor the use of narratives à la Romer and Romer (2010). On the measurement front, our findings support the use of tax rates as the true measure of tax policy as opposed to revenue-based measures, such as cyclically adjusted revenues.

Keywords: Tax multiplier; Fiscal shocks; Identification; Narrative; Cyclically adjusted revenues (search for similar items in EconPapers)
Date: 2016
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Working Paper: Tax Multipliers: Pitfalls in Measurement and Identification (2012) Downloads
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