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The Household Effects of Government Spending

Author

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  • Francesco Giavazzi
  • Michael McMahon
Abstract
This paper provides new evidence on the e ects of scal policy by studying, using household-level data, how households respond to shifts in government spending. Our identi cation strategy allows us to control for time-speci c aggregate e ects, such as the stance of monetary policy or the U.S.-wide business cycle. However, it potentially prevents us from estimating the wealth e ects associated with a shift in spending. We nd signi cant heterogeneity in households’ response to a spending shock; the e ects appear vary over time depending, among other factors, on the state of business cycle and, at a lower frequency, on the composition of employment (such as the share of workers in part-time jobs). Shifts in spending could also have important distributional e ects that are lost when estimating an aggregate mul- tiplier. Heads of households working relatively few (weekly) hours, for instance, su er from a spending shock of the type we analyzed: their consumption falls, their hours increase and their real wages fall.

Suggested Citation

  • Francesco Giavazzi & Michael McMahon, 2012. "The Household Effects of Government Spending," CAMA Working Papers 2012-02, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2012-02
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    Cited by:

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    2. Sylvain Leduc & Daniel Wilson, 2013. "Roads to Prosperity or Bridges to Nowhere? Theory and Evidence on the Impact of Public Infrastructure Investment," NBER Macroeconomics Annual, University of Chicago Press, vol. 27(1), pages 89-142.
    3. Bredemeier, Christian & Juessen, Falko & Winkler, Roland, 2017. "Man-cessions, fiscal policy, and the gender composition of employment," Economics Letters, Elsevier, vol. 158(C), pages 73-76.
    4. Sanz Labrador, Ismael & Sanz-Sanz, José Félix, 2013. "Política fiscal y crecimiento económico: consideraciones microeconómicas y relaciones macroeconómicas," Macroeconomía del Desarrollo 5367, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    5. Luisa Corrado & Edgar Silgado-Gómez, 2018. "Assessing the Effects of Fiscal Policy News under Imperfect Information: Evidence from Aggregate and Individual Data," CEIS Research Paper 447, Tor Vergata University, CEIS, revised 06 Nov 2018.
    6. Alesina, Alberto & Favero, Carlo & Giavazzi, Francesco, 2015. "The output effect of fiscal consolidation plans," Journal of International Economics, Elsevier, vol. 96(S1), pages 19-42.
    7. Luiz de Mello, 2013. "What Can Fiscal Policy Do in the Current Recession? A Review of Recent Literature and Policy Options," Hacienda Pública Española / Review of Public Economics, IEF, vol. 204(1), pages 113-139, March.
    8. Gonzales, Ivonne & Martner Fanta, Ricardo & Podestá, Andrea, 2013. "Políticas fiscales para el crecimiento y la igualdad," Macroeconomía del Desarrollo 5372, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    9. James S. Cloyne & Paolo Surico, 2017. "Household Debt and the Dynamic Effects of Income Tax Changes," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(1), pages 45-81.
    10. Alberto Alesina & Carlo Ambrogio Favero & Francesco Giavazzi, 2012. "The output effect of fiscal consolidations," Working Papers 450, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    11. Alica Ida Bonk & Laure Simon, 2022. "From He-Cession to She-Stimulus? The labor market impact of fiscal policy across gender," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 13(1), pages 309-334, May.
    12. Wifag Adnan & Kerim Peren Arin & Aysegul Corakci & Nicola Spagnolo, 2022. "On the heterogeneous effects of tax policy on labor market outcomes," Southern Economic Journal, John Wiley & Sons, vol. 88(3), pages 991-1036, January.
    13. Christian Bredemeier & Falko Juessen & Roland Winkler, 2020. "Fiscal Policy and Occupational Employment Dynamics," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(6), pages 1527-1563, September.
    14. Raymond Kim, 2021. "Disproportionate costs of uncertainty: Small bank hedging and Dodd‐Frank," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(5), pages 686-709, May.
    15. Beaton Kimberly & Cevik Serhan & Yousefi Seyed Reza, 2018. "Smooth operator: remittances and household consumption during fiscal shocks," The B.E. Journal of Macroeconomics, De Gruyter, vol. 18(2), pages 1-21, June.
    16. Mr. Kevin Fletcher & Mr. Damiano Sandri, 2015. "How Delaying Fiscal Consolidation Affects the Present Value of GDP," IMF Working Papers 2015/052, International Monetary Fund.
    17. Ms. Kimberly Beaton & Mr. Serhan Cevik & Mr. Seyed Reza Yousefi, 2017. "Smooth Operator: Remittances and Fiscal Shocks," IMF Working Papers 2017/165, International Monetary Fund.
    18. Pieroni, Luca & Lorusso, Marco, 2013. "The Role of Fiscal Policy Components in Private Consumption: a Re-examination of the Effects of Military and Civilian Spending," MPRA Paper 47878, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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