Abstract

http://ssrn.com/abstract=2139855
 


 



Comparing Tax and Spending Multipliers: It's All About Controlling for Monetary Policy


Andrew Jalil


Department of Economics, Occidental College

August 2012


Abstract:     
This paper derives empirical estimates for 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 results suggest that for fiscal consolidations, the tax multiplier is larger than the spending multiplier. My estimates indicate that whereas the tax multiplier is roughly 3 — similar to the recent estimates derived by Romer and Romer (2010), the spending multiplier is close to zero. A number of caveats accompany these results, however.

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Date posted: September 1, 2012  

Suggested Citation

Jalil, Andrew, Comparing Tax and Spending Multipliers: It's All About Controlling for Monetary Policy (August 2012). Available at SSRN: http://ssrn.com/abstract=2139855 or http://dx.doi.org/10.2139/ssrn.2139855

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Andrew Jalil (Contact Author)
Department of Economics, Occidental College ( email )
No Address Available
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