Working Paper: NBER ID: w29619
Authors: Joel P. Flynn; Christina Patterson; John Sturm
Abstract: Fiscal stimulus policies propagate through complex and overlapping economic networks. We study their efficacy and targeting in the presence of input-output linkages, regional trade, and household heterogeneity in employment relationships, marginal propensities to consume (MPCs), and consumption baskets. Theoretically, we derive estimable formulae for fiscal multipliers and characterize how network structures determine their size. Empirically, we estimate that multipliers vary substantially across policies, so targeting is important. However, virtually all variation in multipliers stems from differences in policies’ direct incidence onto households’ MPCs. Thus, while policies’ distributional effects depend on network structures, maximally expansionary fiscal policy simply targets households’ MPCs.
Keywords: No keywords provided
JEL Codes: E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fiscal policies targeting higher-MPC households (E62) | Greater increases in GDP (O49) |
| Higher-MPC households spending disproportionately on goods produced by higher-than-average MPC workers (D19) | Amplified overall impact on GDP (F69) |
| Spending patterns among similar MPC households (D19) | Additional amplification of GDP effects (F62) |