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Local Fiscal Multipliers and Fiscal Spillovers in the USA

Author

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  • Auerbach, Alan
  • Gorodnichenko, Yuriy
  • Murphy, Daniel
Abstract
We estimate local fiscal multipliers and spillovers for the USA using a rich dataset based on the US Department of Defense contracts and a variety of outcome variables relating to income and employment. We find strong positive spillovers across locations and industries. Both backward linkages and general equilibrium effects (e.g., income multipliers) contribute to the positive spillovers. Geographical spillovers appear to dissipate fairly quickly with distance. Our evidence points to the relevance of Keynesian-type models that feature excess capacity.

Suggested Citation

  • Auerbach, Alan & Gorodnichenko, Yuriy & Murphy, Daniel, 2020. "Local Fiscal Multipliers and Fiscal Spillovers in the USA," Department of Economics, Working Paper Series qt88f0t0rf, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    • Handle: RePEc:cdl:econwp:qt88f0t0rf
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    References listed on IDEAS

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    Cited by:

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    2. Sergio Destefanis & Valter Di Giacinto, 2022. "EU structural funds and GDP per capita: Spatial VAR evidence for the European regions," Discussion Paper series in Regional Science & Economic Geography 2022-09, Gran Sasso Science Institute, Social Sciences, revised Oct 2024.
    3. Komarek, Timothy M. & Wagner, Gary A., 2020. "The distributional effects of job loss from fiscal consolidation: Evidence from the Budget Control Act of 2011," Economics Letters, Elsevier, vol. 196(C).
    4. Céline Poilly & Fabien Tripier, 2023. "Regional Trade Policy Uncertainty," Working Papers hal-04239322, HAL.
    5. Ethan Ilzetzki, 2024. "Learning by Necessity: Government Demand, Capacity Constraints, and Productivity Growth," American Economic Review, American Economic Association, vol. 114(8), pages 2436-2471, August.
    6. Li, Mingyang & Niu, Linlin, 2021. "Faster fiscal stimulus and a higher government spending multiplier in China: Mixed-frequency identification with SVAR," Economics Letters, Elsevier, vol. 209(C).
    7. Miranda-Pinto, Jorge & Murphy, Daniel & Walsh, Kieran James & Young, Eric R., 2023. "Saving constraints, inequality, and the credit market response to fiscal stimulus," European Economic Review, Elsevier, vol. 151(C).
    8. Huber, Kilian, 2021. "Estimating General Equilibrium Spillovers of Large-Scale Shocks," CEPR Discussion Papers 15943, C.E.P.R. Discussion Papers.
    9. Yoon J. Jo & Sarah Zubairy, 2021. "State dependent government spending multipliers: Downward nominal wage rigidity and sources of business cycle fluctuations," Working Papers 20210127-001, Texas A&M University, Department of Economics.
    10. Proebsting, Christian, 2022. "Market segmentation and spending multipliers," Journal of Monetary Economics, Elsevier, vol. 128(C), pages 1-19.
    11. Auerbach, Alan & Gorodnichenko, Yuriy & McCrory, Peter B. & Murphy, Daniel, 2022. "Fiscal multipliers in the COVID19 recession," Journal of International Money and Finance, Elsevier, vol. 126(C).
    12. Auerbach, Alan J. & Gorodnichenko, Yuriy & Murphy, Daniel, 2021. "Inequality, fiscal policy and COVID19 restrictions in a demand-determined economy," European Economic Review, Elsevier, vol. 137(C).
    13. Berge, Travis & De Ridder, Maarten & Pfajfar, Damjan, 2021. "When is the fiscal multiplier high? A comparison of four business cycle phases," European Economic Review, Elsevier, vol. 138(C).
    14. Sergio Destefanis & Mario Di Serio & Matteo Fragetta, 2022. "Regional multipliers across the Italian regions," Journal of Regional Science, Wiley Blackwell, vol. 62(4), pages 1179-1205, September.
    15. Chen, Sophia & Ratnovski, Lev & Tsai, Pi-Han, 2021. "Credit and fiscal multipliers in China: Evidence from a political economy based estimation," Journal of International Money and Finance, Elsevier, vol. 119(C).
    16. Kameda, Taisuke & Namba, Ryoichi & Tsuruga, Takayuki, 2021. "Decomposing local fiscal multipliers: Evidence from Japan," Japan and the World Economy, Elsevier, vol. 57(C).
    17. Alessio Moro & Omar Rachedi, 2022. "The Changing Structure Of Government Consumption Spending," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(3), pages 1293-1323, August.
    18. Sandra Pasch & Juha Tervala, 2024. "Current Account Adjustment of the Euro Area in the 2010s: Causes and Policies," Open Economies Review, Springer, vol. 35(3), pages 575-604, July.
    19. Elisabetta Cappa & Francesco Lamperti & Gianluca Pallante, 2024. "Creating Jobs Out of the Green: The Employment Effects of the Energy Transition," LEM Papers Series 2024/21, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    20. Pallante, Gianluca & Russo, Emanuele & Roventini, Andrea, 2023. "Does public R&D funding crowd-in private R&D investment? Evidence from military R&D expenditures for US states," Research Policy, Elsevier, vol. 52(8).
    21. Komarek, Timothy M. & Butts, Kyle & Wagner, Gary A., 2022. "Government Contracting, Labor Intensity, and the Local Effects of Fiscal Consolidation: Evidence from the Budget Control Act of 2011," Journal of Urban Economics, Elsevier, vol. 132(C).
    22. Michael Keane & Timothy Neal, 2020. "Climate change and U.S. agriculture: Accounting for multidimensional slope heterogeneity in panel data," Quantitative Economics, Econometric Society, vol. 11(4), pages 1391-1429, November.

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    More about this item

    Keywords

    E62; H5; Applied Economics; Banking; Finance and Investment; Economics;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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