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

We construct a narrative dataset of net-revenue shocks for Germany by extending the tax shock series of Hayo and Uhl (2014) and coding a shock series for social security. We estimate the multiplier effects of shocks to taxes, social security contributions and benefits in a proxy SVAR framework (Mertens and Ravn 2013) and compare them with the top-down identification (Blanchard and Perotti 2002). We find multipliers of all components between 0 and 1 for both approaches.