Top-down vs. bottom-up? Reconciling the effects of tax and transfer shocks on output

Series: Working Papers. 1712.

Author: Sebastian Gechert, Christoph Paetz and Paloma Villanueva.

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Top-down vs. bottom-up? Reconciling the effects of tax and transfer shocks on output (621 KB)

Abstract

Using the bottom-up approach of Romer and Romer (2010), we construct a narrative dataset of net-revenue shocks for Germany by extending the tax shock series of Hayo and Uhl (2014) and coding a shock series for social security contributions, benefits and transfers. We estimate the multiplier effects of shocks to net revenues, taxes, social security contributions, benefits and transfers in a proxy SVAR framework [Mertens and Ravn (2013)] and compare them with the top-down identification [Blanchard and Perotti (2002)]. We find multiplier effects of net-revenue components between 0 and 1 for both approaches. These estimates are comparably low and we investigate the differences.