Working Paper: NBER ID: w31680
Authors: Alessandro Barattieri; Matteo Cacciatore; Nora Traum
Abstract: We estimate the effects of government spending along the supply chain using disaggregated U.S. government procurement data. We first identify sectoral public spending shocks and combine them with input-output tables to measure upstream and downstream exposure through the production network. We then estimate panel local projections and find that sector-specific government purchases have sizable effects both in industries that receive procurement contracts and industries across the supply chain. Employment increases significantly in recipient industries and in sectors supplying intermediate inputs to these industries, while employment decreases downstream. The response of prices and wages suggest higher intermediate-input demand by recipient industries translates into higher intermediate-input prices across the network, accounting for the crowding out of downstream employment. We then estimate the aggregate implications of sectoral shocks and the influence of sectoral heterogeneity using a granular instrumental variable approach. Consistent with existing models, we find that aggregate effects are higher when recipient sectors are more downstream, have stickier prices, and when the government accounts for most of the recipient's total sales.
Keywords: government spending; production network; employment; prices; aggregate outcomes
JEL Codes: E32; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| sector-specific government purchases (H59) | employment in recipient industries (J68) |
| sector-specific government purchases (H59) | employment in sectors supplying intermediate inputs (L79) |
| sector-specific government purchases (H59) | employment downstream (J68) |
| increase intermediate input demand (E22) | increase prices across the network (D49) |
| increase prices across the network (D49) | decrease input demand downstream (J23) |
| increase prices across the network (D49) | decrease production downstream (E23) |
| government spending constitutes a larger share of total sales in recipient sectors (H59) | larger aggregate effects (E10) |
| higher price rigidities in sectors (L11) | larger aggregate multiplier (E10) |
| positive output effects in recipient and upstream industries (F69) | outweigh downstream crowding effects (R12) |
| GIV (C26) | estimating GDP multipliers (E20) |