Working Paper: NBER ID: w7269
Authors: Olivier Blanchard; Roberto Perotti
Abstract: This paper characterizes the dynamic effects of shocks in government spending and taxes on economic activity in the United States in the post-war period. It does so by using a mixed structural VAR/event study approach. Identification is achieved by using institutional information about the tax and transfer systems and the timing of tax collections to identify the automatic response of taxes and spending to activity, and, by implication, to infer fiscal shocks. The results consistently show positive government spending shocks as having a positive effect on output, and positive tax shocks as having a negative effect. The multipliers for both spending and tax shocks are typically small. Turning to the effects of taxes and spending on the components of GDP, one of the results has a distinctly non-standard flavor: Both increases in taxes and increases in government spending have a strong negative effect on investment spending.
Keywords: No keywords provided
JEL Codes: E62; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increases in taxes (H29) | investment spending (E20) |
| increases in government spending (E62) | investment spending (E20) |
| positive government spending shocks (E62) | output (C67) |
| positive tax shocks (H29) | output (C67) |