TY - JOUR AU - Riera-Crichton,Daniel AU - Vegh,Carlos A. AU - Vuletin,Guillermo TI - Tax Multipliers: Pitfalls in Measurement and Identification JF - National Bureau of Economic Research Working Paper Series VL - No. 18497 PY - 2012 Y2 - October 2012 UR - http://www.nber.org/papers/w18497 L1 - http://www.nber.org/papers/w18497.pdf N1 - Author contact info: Daniel Riera-Crichton Department of Economics, Bates College Andrews Road 2 Office 237 Pettingill Hall Lewiston, ME 04240 E-Mail: drieracr@bates.edu Carlos A. Vegh Department of Economics Tydings Hall, Office 4118G University of Maryland College Park, MD 20742-7211 Tel: 301-405-3546 Fax: 301-405-3542 E-Mail: vegh@econ.bsos.umd.edu Guillermo Vuletin Colby College Department of Economics Diamond, 3rd floor 5230 Mayflower Hill Waterville, ME 04901-8852 Tel: 207-859-5235 Fax: 207-859-5248 E-Mail: gvuletin@colby.edu AB - We contribute to the literature on tax multipliers by analyzing the pitfalls in identification and measurement of tax shocks. Our main focus is on disentangling the discussion regarding the identification of exogenous tax policy shocks (i.e., changes in tax policy that are not the result of policymakers responding to output fluctuations) from the discussion related to the measurement of tax policy (i.e., finding a tax policy variable under the direct control of the policymaker). For this purpose, we build a novel value-added tax rate dataset and the corresponding cyclically-adjusted revenue measure at a quarterly frequency for 14 industrial countries for the period 1980-2009. We also provide complementary evidence using Romer and Romer (2010) and Barro and Redlick (2011) data for the United States. On the identification front, our findings favor the use of narratives à la Romer and Romer (2010) to identify exogenous fiscal shocks as opposed to the identification via SVAR. On the (much less explored) measurement front, our results strongly support the use of tax rates as a true measure of the tax policy instrument as opposed to widely-used, revenue-based measures, such as cyclically-adjusted revenues. ER -