Fiscal Multipliers in the Netherlands

This study estimates average tax and spending multipliers for the Netherlands, for the last 16 years, using a structural VAR approach (SVAR). We identify exogenous tax and spending shocks by including external information and assumptions about the internal mechanisms of the Dutch tax and transfer system. We analyze both a three (taxes, spending, output) and five (incl. interest and inflation rates) variable model, thereby following Blanchard and Perotti (2002) and Perotti (2004). We also perform a battery of robustness checks, including a sign restriction approach (Mountford and Uhlig (2009)). The results show positive cumulative spending multipliers between 0.8 and 1.2, for a period of 4 years. Our estimates for the tax multipliers however do not indicate a consistent sign or magnitude. Robustness checks confirm this pattern. The reason for the inconsistency in tax multiplier results is believed to lie in occurences in the data that are not captured by the models.