Comparing tax and spending multipliers by controlling for monetary policy

Andrew J. Jalil

International Journal of Economics and Business Research, 2016, vol. 12, issue 1, 62-90

Abstract: This paper derives empirical estimates for aggregate tax and spending multipliers. To deal with endogeneity concerns, I employ a large sample of fiscal consolidations identified through the narrative approach. To control for monetary policy, I study the output effects of fiscal consolidations in countries where monetary authorities are constrained in their ability to counteract shocks because they are in either a monetary union (and hence, lack an independent central bank) or a liquidity trap. My empirical estimates suggest that for fiscal consolidations, the tax multiplier is larger than the spending multiplier. The estimated tax multiplier is large - on the order of 3, suggesting strongly negative effects of tax increases on output.

Keywords: fiscal multipliers; monetary policy; fiscal policy; tax increases; government spending cuts; endogeneity; fiscal consolidation. (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijecbr:v:12:y:2016:i:1:p:62-90

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