Are Fiscal Multipliers Estimated with Proxy-SVARs Robust?

How large are government spending and tax multipliers? The fiscal proxy- SVAR literature
provides heterogenous estimates, depending on which proxies - fiscal or non-fiscal - are
used to identify fiscal shocks. We reconcile the existing estimates via a flexible vector
autoregressive model that allows to achieve identification in presence of a number of
structural shocks larger than that of the available instruments. Our two main findings are
the following. First, the estimate of the tax multiplier is sensitive to the assumption of
orthogonality between total factor productivity (non-fiscal proxy) and tax shocks. If this
correlation is assumed to be zero, the tax multiplier is found to be around one. If such
correlation is non-zero, as supported by our empirical evidence, we find a tax multiplier
three times as large. Second, we find the spending multiplier to be robustly larger than
one across different models that feature different sets of instruments. Our results are
robust to the joint employment of different fiscal and non-fiscal instruments.