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Comparing tax and spending multipliers by controlling for monetary policy

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  • Andrew J. Jalil

Abstract

This paper derives empirical estimates for aggregate 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 empirical estimates suggest that for fiscal consolidations, the tax multiplier is larger than the spending multiplier. The estimated tax multiplier is large - on the order of 3, suggesting strongly negative effects of tax increases on output.

Suggested Citation

  • Andrew J. Jalil, 2016. "Comparing tax and spending multipliers by controlling for monetary policy," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 12(1), pages 62-90.
    • Handle: RePEc:ids:ijecbr:v:12:y:2016:i:1:p:62-90
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    Cited by:

    1. Karamysheva, Madina, 2022. "How do fiscal adjustments work? An empirical investigation," Journal of Economic Dynamics and Control, Elsevier, vol. 137(C).
    2. Afonso, António & Alves, José & Jalles, João Tovar, 2022. "The (non-)Keynesian effects of fiscal austerity: New evidence from a large sample," Economic Systems, Elsevier, vol. 46(2).

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