Working Paper: CEPR ID: DP16189
Authors: William Dupor; Marios Karabarbounis; Marianna Kudlyak; M Saif Mehkari
Abstract: We use regional variation in the American Recovery and Reinvestment Act (2009-2012) to analyze the effect of government spending on consumer spending. Our consumption data come from household-level retail purchases in the Nielsen scanner data and auto purchases from Equifax credit balances. We estimate that a $1 increase in county-level government spending increases local non-durable consumer spending by $0.29 and local auto spending by $0.09. We translate the regional consumption responses to an aggregate fiscal multiplier using a multiregional, New Keynesian model with heterogeneous agents, incomplete markets, and trade linkages. Our model is consistent with the estimated positive local multiplier, a result that distinguishes our incomplete markets model from models with complete markets. At the zero lower bound, the aggregate consumption multiplier is twice as large as the local multiplier because trade linkages propagate the effect of government spending across regions.
Keywords: No keywords provided
JEL Codes: E21; E62; H31; H71
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| county-level government spending (H70) | local nondurable consumer spending (D19) |
| county-level government spending (H70) | local auto spending (R42) |
| local nondurable consumer spending (D19) | aggregate consumption multiplier (E20) |
| local auto spending (R42) | aggregate consumption multiplier (E20) |
| government spending (H59) | local nondurable consumer spending (D19) |
| government spending (H59) | local auto spending (R42) |