This paper proposes and applies a new method to analyze the effects of fiscal policy shocks using vector autoregressions (VARs). The authors use sign restrictions to identify government revenue and spending shocks while controlling for business cycle and monetary policy shocks. They explicitly allow for announcement effects, where a current fiscal policy shock changes fiscal variables in the future but not at present. The method is applied to US quarterly data from 1955 to 2000, constructing impulse responses to three linear combinations of fiscal shocks: deficit-spending, deficit-financed tax cuts, and balanced budget spending expansion. The results show that deficit-financed tax cuts are the most effective in improving GDP, with a maximal present value multiplier of $5 of additional GDP per dollar of total cut in government revenue five years after the shock. The paper also discusses the responses of investment, consumption, and real wages to fiscal policy shocks, finding that these responses are difficult to reconcile with standard Keynesian or real business cycle models.This paper proposes and applies a new method to analyze the effects of fiscal policy shocks using vector autoregressions (VARs). The authors use sign restrictions to identify government revenue and spending shocks while controlling for business cycle and monetary policy shocks. They explicitly allow for announcement effects, where a current fiscal policy shock changes fiscal variables in the future but not at present. The method is applied to US quarterly data from 1955 to 2000, constructing impulse responses to three linear combinations of fiscal shocks: deficit-spending, deficit-financed tax cuts, and balanced budget spending expansion. The results show that deficit-financed tax cuts are the most effective in improving GDP, with a maximal present value multiplier of $5 of additional GDP per dollar of total cut in government revenue five years after the shock. The paper also discusses the responses of investment, consumption, and real wages to fiscal policy shocks, finding that these responses are difficult to reconcile with standard Keynesian or real business cycle models.