Working Paper: NBER ID: w25457
Authors: Alan J. Auerbach; Yuriy Gorodnichenko; Daniel Murphy
Abstract: We estimate local fiscal multipliers and spillovers for the United States using a rich dataset based on U.S. 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.
Keywords: Fiscal multipliers; Fiscal spillovers; Government spending; Defense contracts
JEL Codes: E62; H5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| DoD spending in a city (H56) | GDP in that city (R12) |
| DoD spending in a city (H56) | labor earnings in that city (J39) |
| Increase in DoD spending (1% of local earnings) (H56) | employment increase (0.2%) (J69) |
| DoD spending in a city (H56) | earnings in proximate cities (R11) |
| DoD spending in a city (H56) | local industries benefit through backward linkages (L52) |
| DoD spending in a city (H56) | general equilibrium effects (D50) |