A reconciliation of SVAR and narrative estimates of tax multipliers

•Existing empirical estimates of US nationwide tax multipliers vary from close to zero to very large.•Using narrative proxies for tax shocks in an SVAR, we estimate large tax multipliers (two on impact).•Previous lower SVAR estimates assume an output elasticity of revenues rejected by narrative data.•Previous lower narrative estimates fail to account for measurement error.

Existing empirical estimates of US nationwide tax multipliers vary from close to zero to very large. Using narrative measures as proxies for structural shocks to total tax revenues in an SVAR, we estimate tax multipliers at the higher end of the range: around two on impact and up to three after 6 quarters. We show that earlier findings of lower multipliers can be explained by an output elasticity of tax revenues assumption that is contradicted by empirical evidence or by failure to account for measurement error in narrative series of tax shocks.