In a recent article, Mankiw and Summers (1986) examined the explanatory and predictive power of the demand functions for M1 and M2 under alternative speciElcations of the scale variable that enters these functions. They found that for the M 1 function consumer spending outperformed GNP, whereas for M2 disposable income and Elnal sales generated the best results. The replacement of GNP in money demand with consumption spending or disposable income has an interesting implication for the effect of tax policies. More than a decade ago, Holmes and Smyth (1972) showed that the sign of the tax multiplier is ambiguous when money demand depends on income taxes either through consumption or disposable income. To our knowledge, Mankiw and Summers are the Elrst to provide empirical insight into this issue. They found that when consumer spending is used as the scale variable in money demand, a necessary and sufElcient condition for the tax multiplier to be positive is satisfied. In reaching this conclusion, Mankiw and Summers used a partial equilibrium approach in that they estimated only the money market parameters needed to evaluate this condition. As a result, they had to turn to previous literature for estimates of product market parameters that also enter this condition. In this paper, we take a more general approach to the problem of determining the sign of the tax multiplier when money demand depends on income taxes. Based on a simultaneousequations model, we estimate the income tax multiplier using three alternative scale variables in the money demand function: GNP, consumption of nondurables and services, and disposable income. Our findings indicate that the tax multiplier remains negative when GNP is replaced with either of the latter two variables, but it becomes smaller in absolute value.