This paper explores the influence of government policies in explaining output, employment and investment in The Netherlands during the period 1966–1989. The paper develops an empirical macroeconomic model estimated with annual data relating to the period 1958–1989. It finds that restrictive fiscal policies in the eighties have had adverse short-term effects on output and employment. Furthermore, the drop in the rate of increase in tax and social security contribution rates in this period has boosted output, employment and investment. However, the shift in public expenditure from investment to consumption has exerted a negative impact on these variables, largely offsetting the positive impact of the tax policies.