Are Fiscal Multipliers Estimated with Proxy-SVARs Robust?

Giovanni Angelini, Giovanni Caggiano, Efrem Castelnuovo and Luca Fanelli ()

No 2021-08, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: We estimate government spending and tax multipliers 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 are used. We unveil that the key factor behind these heterogenous estimates is the assumption of orthogonality between the 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. We provide empirical evidence in favour of the latter specification.

Keywords: Fiscal multipliers; fiscal policy; identification; instruments; structural vector autoregressions (search for similar items in EconPapers)
JEL-codes: C52 E62 (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-mac
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Related works:
Journal Article: Are Fiscal Multipliers Estimated with Proxy‐SVARs Robust?* (2023)
Working Paper: Are Fiscal Multipliers Estimated with Proxy-SVARs Robust? (2020)
Working Paper: Are Fiscal Multipliers Estimated with Proxy-SVARs Robust? (2020)
Working Paper: Are fiscal multipliers estimated with proxy-SVARs robust? (2020)
Working Paper: Are Fiscal Multipliers Estimated with Proxy-SVARs Robust? (2020)
Working Paper: Are fiscal multipliers estimated with proxy-SVARs robust? (2020)
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