Are Fiscal Multipliers Estimated with Proxy-SVARs Robust?

Angelini, Giovanni ; Caggiano, Giovanni ; Castelnuovo, Efrem ; Fanelli, Luca (2020) Are Fiscal Multipliers Estimated with Proxy-SVARs Robust? Bologna: Dipartimento di Scienze economiche, p. 45. DOI 10.6092/unibo/amsacta/6428. In: Quaderni - Working Paper DSE (1151). ISSN 2282-6483.
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Abstract

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 non-zero, 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.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Angelini, GiovanniUniversity of Bologna0000-0003-3000-9885
Caggiano, GiovanniMonash University0000-0003-2054-3304
Castelnuovo, EfremUniversity of Melbourne0000-0001-5141-5167
Fanelli, LucaUniversity of Bologna0000-0001-5351-2876
Keywords
Fiscal multipliers, fiscal policy, identification, instruments, structural vector autoregressions
Subjects
ISSN
2282-6483
DOI
Deposit date
13 Jul 2020 16:35
Last modified
13 Jul 2020 16:35
URI

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