Top-Down vs Bottom-Up: Reconciling the Effects of Tax and Transfer Shocks on Output

Sebastian Gechert, Macroeconomic Policy Institute (IMK), Düsseldorf, Germany.

Using the bottom-up approach of Romer and Romer (2010), we construct a rich narrative dataset of net-revenue fiscal shocks for Germany by reconstructing and extending the tax shock series of Hayo and Uhl (2014) and coding a shock series for social security contributions, benefits and transfers. Based on quarterly data for 1974q1 to 2013q4 we estimate the multiplier effects of shocks to net-revenues, taxes, social security contributions and benefits in a proxy SVAR framework (Mertens and Ravn 2013) and compare them with estimates of the top-down identification inspired by Blanchard and Perotti (2002). We find multiplier effects of net-revenue components for Germany between 0 and 1 for both the top-down and bottom-up approaches. These estimates are on the lower end of the scale given in the literature and we discuss the differences.

About the speaker
Sebastian Gechert is head of the Unit Macroeconomics and Income Dynamics at Macroeconomic Policy Institute (IMK), Düsseldorf, Germany. Currently, his research focuses on the impact of fiscal policy on growth and distribution, as well as the design of fiscal rules.

Venue: room C-1.05 (School of Business and Economics, Tongersestraat 53).

Date: 16 November 2016

Time: 12:00 - 13:00  CET