IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_6244.html
   My bibliography  Save this paper

Government Spending and Durable Goods

Author

Listed:
  • Christopher E. Boehm

Abstract

This paper shows that the fiscal multiplier for purchases of durable and investment goods is very small - much smaller than the multiplier for nondurable goods. Standard models predict small durables multipliers because private sector purchases of durable goods are highly intertemporally substitutable and therefore easily crowded out. Empirical estimates based on U.S. data confirm this result. In aggregate time series data output rises by about 50 cents less if the government purchases 1$ of durable rather than nondurable goods. At the industry level, spending on durable goods leads to smaller sectoral expansions than spending on nondurable goods. The findings of this paper suggest that infrastructure spending which is frequently part of fiscal stimulus packages is relatively ineffective at raising aggregate demand.

Suggested Citation

  • Christopher E. Boehm, 2016. "Government Spending and Durable Goods," CESifo Working Paper Series 6244, CESifo.
  • Handle: RePEc:ces:ceswps:_6244
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp6244.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
    2. Alexander Meyer-Gohde, 2010. "Matlab code for one-sided HP-filters," QM&RBC Codes 181, Quantitative Macroeconomics & Real Business Cycles.
    3. David Berger & Joseph Vavra, 2014. "Measuring How Fiscal Shocks Affect Durable Spending in Recessions and Expansions," American Economic Review, American Economic Association, vol. 104(5), pages 112-115, May.
    4. Gabriel Chodorow-Reich & Laura Feiveson & Zachary Liscow & William Gui Woolston, 2012. "Does State Fiscal Relief during Recessions Increase Employment? Evidence from the American Recovery and Reinvestment Act," American Economic Journal: Economic Policy, American Economic Association, vol. 4(3), pages 118-145, August.
    5. Sylvain Leduc & Daniel Wilson, 2013. "Roads to Prosperity or Bridges to Nowhere? Theory and Evidence on the Impact of Public Infrastructure Investment," NBER Macroeconomics Annual, University of Chicago Press, vol. 27(1), pages 89-142.
    6. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle, August.
    7. Jordi Galí, 2008. "Introduction to Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework," Introductory Chapters, in: Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework, Princeton University Press.
    8. Robert E. Hall, 2009. "By How Much Does GDP Rise If the Government Buys More Output?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(2 (Fall)), pages 183-249.
    9. Emi Nakamura & J?n Steinsson, 2014. "Fiscal Stimulus in a Monetary Union: Evidence from US Regions," American Economic Review, American Economic Association, vol. 104(3), pages 753-792, March.
    10. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2011. "When Is the Government Spending Multiplier Large?," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 78-121.
    11. Rendahl, Pontus, 2014. "Fiscal Policy in an Unemployment Crisis," CEPR Discussion Papers 9992, C.E.P.R. Discussion Papers.
    12. Raj Chetty & Adam Guren & Day Manoli & Andrea Weber, 2011. "Are Micro and Macro Labor Supply Elasticities Consistent? A Review of Evidence on the Intensive and Extensive Margins," American Economic Review, American Economic Association, vol. 101(3), pages 471-475, May.
    13. Miles S. Kimball & Matthew D. Shapiro, 2008. "Labor Supply: Are the Income and Substitution Effects Both Large or Both Small?," NBER Working Papers 14208, National Bureau of Economic Research, Inc.
    14. Michael T. Owyang & Valerie A. Ramey & Sarah Zubairy, 2013. "Are government spending multipliers greater during periods of slack? evidence from 20th century historical data," Working Papers 2013-004, Federal Reserve Bank of St. Louis.
    15. Robert Barsky & Christopher L. House & Miles Kimball, 2003. "Do Flexible Durable Goods Prices Undermine Sticky Price Models?," NBER Working Papers 9832, National Bureau of Economic Research, Inc.
    16. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
    17. Janice Eberly & Sergio Rebelo & Nicolas Vincent, 2008. "Investment and Value: A Neoclassical Benchmark," Cahiers de recherche 08-03, HEC Montréal, Institut d'économie appliquée.
    18. Michael T. Owyang & Valerie A. Ramey & Sarah Zubairy, 2013. "Are Government Spending Multipliers Greater during Periods of Slack? Evidence from Twentieth-Century Historical Data," American Economic Review, American Economic Association, vol. 103(3), pages 129-134, May.
    19. Christopher L. House & Matthew D. Shapiro, 2008. "Temporary Investment Tax Incentives: Theory with Evidence from Bonus Depreciation," American Economic Review, American Economic Association, vol. 98(3), pages 737-768, June.
    20. David CASHIN & UNAYAMA Takashi, 2012. "Short-run Distributional Effects of VAT Rate Change: Evidence from a consumption tax rate increase in Japan," Discussion papers 12029, Research Institute of Economy, Trade and Industry (RIETI).
    21. Hausman, Joshua K., 2016. "What Was Bad for General Motors Was Bad for America: The Automobile Industry and the 1937/38 Recession," The Journal of Economic History, Cambridge University Press, vol. 76(2), pages 427-477, June.
    22. Alfredo M. Pereira, 2000. "Is All Public Capital Created Equal?," The Review of Economics and Statistics, MIT Press, vol. 82(3), pages 513-518, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lemoine, Matthieu & Lindé, Jesper, 2023. "Fiscal stimulus in liquidity traps: Conventional or unconventional policies?," European Economic Review, Elsevier, vol. 151(C).
    2. Boehm, Christoph E., 2020. "Government consumption and investment: Does the composition of purchases affect the multiplier?," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 80-93.
    3. Rong Li, 2017. "Putting Government Spending Shocks under the Microscope: Standard Vector Autoregression versus the Narrative Approach," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 73(3), pages 237-254, September.
    4. Sheremirov, Viacheslav & Spirovska, Sandra, 2022. "Fiscal multipliers in advanced and developing countries: Evidence from military spending," Journal of Public Economics, Elsevier, vol. 208(C).
    5. Christoph Boehm & Nitya Pandalai Nayar, 2018. "Are supply curves convex? Implications for state-dependent responses to shocks," 2018 Meeting Papers 336, Society for Economic Dynamics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Boehm, Christoph E., 2020. "Government consumption and investment: Does the composition of purchases affect the multiplier?," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 80-93.
    2. Valerie A. Ramey, 2019. "Ten Years after the Financial Crisis: What Have We Learned from the Renaissance in Fiscal Research?," Journal of Economic Perspectives, American Economic Association, vol. 33(2), pages 89-114, Spring.
    3. Marco Bernardini & Selien De Schryder & Gert Peersman, 2020. "Heterogeneous Government Spending Multipliers in the Era Surrounding the Great Recession," The Review of Economics and Statistics, MIT Press, vol. 102(2), pages 304-322, May.
    4. Lukas Buchheim & Martin Watzinger, 2017. "The Employment Effects of Countercyclical Infrastructure Investments," CESifo Working Paper Series 6383, CESifo.
    5. Sebastian Gechert & Ansgar Rannenberg, 2014. "Are Fiscal Multipliers Regime-Dependent? A Meta Regression Analysis," IMK Working Paper 139-2014, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    6. Axelle Ferriere & Gaston Navarro, 2013. "The Heterogeneous Effects of Government Spending: It's All About Taxes," Working Papers 13-18, New York University, Leonard N. Stern School of Business, Department of Economics.
    7. Patrick Blagrave & Giang Ho & Ksenia Koloskova & Mr. Esteban Vesperoni, 2017. "Fiscal Spillovers: The Importance of Macroeconomic and Policy Conditions in Transmission," IMF Spillover Notes 2017/002, International Monetary Fund.
    8. Dell'Erba, Salvatore & Koloskova, Ksenia & Poplawski-Ribeiro, Marcos, 2018. "Medium-term fiscal multipliers during protracted economic contractions," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 35-52.
    9. Ramey, V.A., 2016. "Macroeconomic Shocks and Their Propagation," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 71-162, Elsevier.
    10. Biolsi, Christopher, 2017. "Nonlinear effects of fiscal policy over the business cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 78(C), pages 54-87.
    11. Fuchs-Schündeln, N. & Hassan, T.A., 2016. "Natural Experiments in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 923-1012, Elsevier.
    12. Borsi, Mihály Tamás, 2018. "Fiscal multipliers across the credit cycle," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 135-151.
    13. Òscar Jordà & Alan M. Taylor, 2016. "The Time for Austerity: Estimating the Average Treatment Effect of Fiscal Policy," Economic Journal, Royal Economic Society, vol. 126(590), pages 219-255, February.
    14. Min, Feng & Wen, Fenghua & Wang, Xiong, 2022. "Measuring the effects of monetary and fiscal policy shocks on domestic investment in China," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 395-412.
    15. Mr. Salvatore Dell'Erba & Mr. Marcos Poplawski Ribeiro & Ksenia Koloskova, 2014. "Medium-Term Fiscal Multipliers during Protracted Recessions," IMF Working Papers 2014/213, International Monetary Fund.
    16. Gabriel Chodorow-Reich, 2017. "Geographic Cross-Sectional Fiscal Multipliers: What Have We Learned?," Working Paper 458091, Harvard University OpenScholar.
    17. Wei Dong & Geoffrey Dunbar & Christian Friedrich & Dmitry Matveev & Romanos Priftis & Lin Shao, 2021. "Complementarities Between Fiscal Policy and Monetary Policy—Literature Review," Discussion Papers 2021-4, Bank of Canada.
    18. Salvatore Perdichizzi, 2017. "Estimating Fiscal multipliers in the Eurozone. A Nonlinear Panel Data Approach," DISCE - Working Papers del Dipartimento di Economia e Finanza def058, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    19. Andrea Boitani & Salvatore Perdichizzi, 2018. "Public Expenditure Multipliers in recessions. Evidence from the Eurozone," DISCE - Working Papers del Dipartimento di Economia e Finanza def068, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    20. Valerie A. Ramey & Sarah Zubairy, 2018. "Government Spending Multipliers in Good Times and in Bad: Evidence from US Historical Data," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 850-901.

    More about this item

    Keywords

    durable goods; fiscal policy; government spending; fiscal multiplier;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_6244. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.