The Tax Multiplier in the Netherlands: New Estimates from a Narrative Study

This paper studies the e↵ect of tax changes on output for the Netherlands between 1960 and 2015. I use the narrative record of parliamentary reports, the Budget Memorandum (BM) and Tax Plan to identify tax changes that are exogenous to output. Using simple OLS, I show that the e↵ect of tax on output is significant and contractionary, yet mostly in the same quarter as the introduction of a tax change. The output e↵ect has faded after two years. I estimate implied impact multipliers of around -0.9% of GDP and, depending on the model specification, a total multiplier of between -1% and -2% of GDP following a tax shock of 1% of GDP.