This paper presents a new method for analyzing the effects of fiscal policy shocks using vector autoregressions (VARs). The method uses sign restrictions to identify government revenue shocks and government spending shocks, while controlling for business cycle shocks and monetary policy shocks. The approach allows for the possibility of announcement effects, where fiscal policy changes affect variables in the future but not immediately. The authors construct impulse responses for three fiscal policy scenarios: deficit spending, deficit-financed tax cuts, and balanced budget spending expansions. They apply the method to US quarterly data from 1955 to 2000 and find that deficit-financed tax cuts are the most effective in stimulating GDP, with a present value multiplier of five dollars of additional GDP per dollar of tax cut five years after the shock. The results show that deficit spending has a weak stimulative effect, crowds out private investment without raising interest rates, and does not increase real wages. The paper contributes to the literature on fiscal policy analysis by providing a purely VAR-based approach that is systematic and universally applicable. The results are consistent with previous studies, showing that investment falls in response to tax increases and government spending increases, and that tax cuts have larger multipliers than spending increases. The paper also finds that real wages do not rise in response to government spending shocks, which is difficult to reconcile with standard Keynesian models. The authors conclude that fiscal policy shocks should be analyzed with caution, as the long-term costs of deficit financing may outweigh the immediate benefits.This paper presents a new method for analyzing the effects of fiscal policy shocks using vector autoregressions (VARs). The method uses sign restrictions to identify government revenue shocks and government spending shocks, while controlling for business cycle shocks and monetary policy shocks. The approach allows for the possibility of announcement effects, where fiscal policy changes affect variables in the future but not immediately. The authors construct impulse responses for three fiscal policy scenarios: deficit spending, deficit-financed tax cuts, and balanced budget spending expansions. They apply the method to US quarterly data from 1955 to 2000 and find that deficit-financed tax cuts are the most effective in stimulating GDP, with a present value multiplier of five dollars of additional GDP per dollar of tax cut five years after the shock. The results show that deficit spending has a weak stimulative effect, crowds out private investment without raising interest rates, and does not increase real wages. The paper contributes to the literature on fiscal policy analysis by providing a purely VAR-based approach that is systematic and universally applicable. The results are consistent with previous studies, showing that investment falls in response to tax increases and government spending increases, and that tax cuts have larger multipliers than spending increases. The paper also finds that real wages do not rise in response to government spending shocks, which is difficult to reconcile with standard Keynesian models. The authors conclude that fiscal policy shocks should be analyzed with caution, as the long-term costs of deficit financing may outweigh the immediate benefits.