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The State-Level Nonlinear Effects of Government Spending Shocks in the US: The Role of Partisan Conflict

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  • Xin Sheng

    (Lord Ashcroft International Business School, Anglia Ruskin University, Chelmsford CM1 1SQ, UK)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

Abstract

Utilising a nonlinear (regime-switching) mixed-frequency panel vector autoregression model, we study the effects of government spending shocks in the United States (US) over the business cycle, while considering the role of partisan conflict. In particular, we investigate whether partisan conflict is relevant to the differences in fiscal spending multipliers in expansionary and recessionary business cycle phases upon the impact of annual government spending shocks, using quarterly state-level data covering 1950:Q1 to 2016:Q4. We find new evidence that fiscal multipliers can vary with economic and political conditions. The cumulated effects of government spending shocks are strong and persistent in recessions when the level of partisan conflict is low.

Suggested Citation

  • Xin Sheng & Rangan Gupta, 2022. "The State-Level Nonlinear Effects of Government Spending Shocks in the US: The Role of Partisan Conflict," Sustainability, MDPI, vol. 14(18), pages 1-9, September.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:18:p:11299-:d:910507
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