Are fiscal multipliers estimated with proxy-SVARs robust?

Arbeitspapier

How large are government spending and tax multipliers? The fiscal proxy-SVAR literature provides heterogenous estimates, depending on which proxies - fiscal or non-fiscal - are used to identify fiscal shocks. We reconcile the existing estimates via a flexible vector autoregressive model that allows to achieve identification in presence of a number of structural shocks larger than that of the available instruments. Our two main findings are the following. First, the estimate of the tax multiplier is sensitive to the assumption of orthogonality between total factor productivity (non-fiscal proxy) and tax shocks. If this correlation is assumed to be zero, the tax multiplier is found to be around one. If such correlation is nonzero, as supported by our empirical evidence, we find a tax multiplier three times as large. Second, we find the spending multiplier to be robustly larger than one across different models that feature different sets of instruments. Our results are robust to the joint employment of different fiscal and non-fiscal instruments.

Object Details

• ISBN: 978-952-323-340-9
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Finland Research Discussion Papers ; No. 13/2020

Classification and Topics

• Classification: Wirtschaft ; Model Evaluation, Validation, and Selection ; Fiscal Policy
• Subject: Fiscal multipliers ; fiscal policy ; identification ; instruments ; structural vector autoregressions

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Angelini, Giovanni ; Caggiano, Giovanni ; Castelnuovo, Efrem ; Fanelli, Luca
• Event: Veröffentlichung
• (who): Bank of Finland
• (where): Helsinki
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/240336
• Last update: 10.03.2025, 11:43 AM CET