A Model-Based Evaluation of the Debate on the Size of the Tax Multiplier / Ryan Chahrour, Stephanie Schmitt-Grohé, Martín Uribe.

Format:

Book

Author/Creator:

Chahrour, Ryan.

Contributor:

National Bureau of Economic Research.

Schmitt-Grohé, Stephanie.

Uribe, Martín.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16169.

NBER working paper series no. w16169

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2010.

Summary:

The SVAR and narrative approaches to estimating tax multipliers deliver significantly different results. The former yields multipliers of about 1 percent, whereas the latter produces much larger multipliers of about 3 percent. The SVAR and narrative approaches differ along two important dimensions: the identification scheme and the reduced-form transmission mechanism. This paper uses a DSGE-model approach to evaluate the hypothesis that the different tax multipliers stemming from the SVAR and narrative approaches are due to differences in the assumed reduced-form transmission mechanisms. The main finding of the paper is that in the context of the DSGE model employed this hypothesis is rejected. Instead, the observed differences in estimated multipliers are due either to both models failing to identify the same tax shock, or to small-sample uncertainty.

Notes:

Print version record

July 2010.