The SVAR and narrative approaches to estimating tax multipliers deliver significantly different results. The former yields multipliers of about 1 and the latter of about 3. The two approaches differ along two important dimensions: the identification scheme and the reduced-form transmission mechanism. This paper uses a DSGE-model
to evaluate the hypothesis that the difference in multipliers is due to differences in transmission mechanisms. The main finding of the paper is that this hypothesis is rejected. Instead, the observed differences in estimated multipliers are due either to the models failing to identify the same tax shock, or to small-sample uncertainty.
(JEL E13, E23, E32, E62, H20)
"A Model-Based Evaluation of the Debate on the Size of the Tax Multiplier."
American Economic Journal: Economic Policy,
General Aggregative Models: Neoclassical
Business Fluctuations; Cycles
Taxation, Subsidies, and Revenue: General