Revisiting the Narrative Approach of Estimating Tax Multipliers

12 Pages Posted: 26 Mar 2018

See all articles by Shafik Hebous

Shafik Hebous

International Monetary Fund

Tom Zimmermann

QuantCo, Inc.; University of Cologne

Multiple version iconThere are 3 versions of this paper

Date Written: April 2018

Abstract

We analyze whether popular measures of narrative tax shocks can be treated as relevant instruments for observable endogenous tax series of interest. We find that narrative tax measures are only weakly correlated with cyclically adjusted tax revenues for the US and the UK. Using weak‐instrument robust inference, narrative tax measures often yield insignificant estimates of tax multipliers. We conclude that the literature currently understates the uncertainty associated with estimating the tax multiplier using the narrative approach.

Keywords: Fiscal stabilization, narrative approach, tax multiplier, weak instruments

Suggested Citation

Hebous, Shafik and Zimmermann, Tom, Revisiting the Narrative Approach of Estimating Tax Multipliers (April 2018). The Scandinavian Journal of Economics, Vol. 120, Issue 2, pp. 428-439, 2018. Available at SSRN: https://ssrn.com/abstract=3149193 or http://dx.doi.org/10.1111/sjoe.12232

Shafik Hebous (Contact Author)

International Monetary Fund ( email )

Washington, DC
United States

Tom Zimmermann

QuantCo, Inc. ( email )

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

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