IDEAS home Printed from
   My bibliography  Save this paper

The Household Effects of Government Spending


  • Giavazzi, Francesco
  • McMahon, Michael


This paper provides new evidence on the effects of fiscal policy by studying, using household-level data, how households respond to shifts in government spending. Our identification strategy allows us to control for time-specific aggregate effects, such as the stance of monetary policy or the US-wide business cycle. However, it potentially prevents us from estimating the wealth effects associated with a shift in spending. We find significant heterogeneity in households' response to a spending shock; the effects appear vary over time depending, among other factors, on the state of business cycle and, at a lower frequency, on the composition of employment (such as the share of workers in part-time jobs). Shifts in spending could also have important distributional effects that are lost when estimating an aggregate multiplier. Heads of households working relatively few (weekly) hours, for instance, suffer from a spending shock of the type we analyzed: their consumption falls, their hours increase and their real wages fall.

Suggested Citation

  • Giavazzi, Francesco & McMahon, Michael, 2012. "The Household Effects of Government Spending," CEPR Discussion Papers 8846, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8846

    Download full text from publisher

    File URL:
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    1. Christopher J. Nekarda & Valerie A. Ramey, 2011. "Industry Evidence on the Effects of Government Spending," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 36-59, January.
    2. Carlo Favero & Francesco Giavazzi & Jacopo Perego, 2011. "Country Heterogeneity and the International Evidence on the Effects of Fiscal Policy," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(4), pages 652-682, November.
    3. Valerie A. Ramey, 2011. "Identifying Government Spending Shocks: It's all in the Timing," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 1-50.
    4. Atkeson, Andrew & Ogaki, Masao, 1996. "Wealth-varying intertemporal elasticities of substitution: Evidence from panel and aggregate data," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 507-534, December.
    5. Del Negro, Marco, 2002. "Asymmetric shocks among U.S. states," Journal of International Economics, Elsevier, vol. 56(2), pages 273-297, March.
    6. Joseph Cullen & Price V. Fishback, 2006. "Did Big Government's Largesse Help the Locals? The Implications of WWII Spending for Local Economic Activity, 1939-1958," NBER Working Papers 12801, National Bureau of Economic Research, Inc.
    7. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Fiscal Multipliers in Recession and Expansion," NBER Chapters,in: Fiscal Policy after the Financial Crisis, pages 63-98 National Bureau of Economic Research, Inc.
    8. Burnside, Craig & Eichenbaum, Martin & Fisher, Jonas D. M., 2004. "Fiscal shocks and their consequences," Journal of Economic Theory, Elsevier, vol. 115(1), pages 89-117, March.
    9. Lilia Maliar & Serguei Maliar, 2003. "The Representative Consumer in the Neoclassical Growth Model with Idiosyncratic Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 368-380, April.
    10. Giavazzi, Francesco & McMahon, Michael, 2008. "Policy Uncertainty and Precautionary Savings," CEPR Discussion Papers 6766, C.E.P.R. Discussion Papers.
    11. Valerio Ercolani, 2010. "The Precautionary Effect of Government Expenditures on Private Consumption," 2010 Meeting Papers 826, Society for Economic Dynamics.
    12. Eric M. Leeper & Nora Traum & Todd B. Walker, 2017. "Clearing Up the Fiscal Multiplier Morass," American Economic Review, American Economic Association, vol. 107(8), pages 2409-2454, August.
    13. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, vol. 98(5), pages 1887-1921, December.
    14. 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.
    15. Constantinides, George M, 1982. "Intertemporal Asset Pricing with Heterogeneous Consumers and without Demand Aggregation," The Journal of Business, University of Chicago Press, vol. 55(2), pages 253-267, April.
    Full references (including those not matched with items on IDEAS)


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

    Cited by:

    1. repec:oup:oxecpp:v:69:y:2017:i:3:p:632-654. is not listed on IDEAS
    2. Alari PaulusBy & Francesco Figari & Holly Sutherland, 2017. "The design of fiscal consolidation measures in the European Union: distributional effects and implications for macro-economic recovery," Oxford Economic Papers, Oxford University Press, vol. 69(3), pages 632-654.
    3. Alesina, Alberto F & Favero, Carlo A. & Giavazzi, Francesco, 2012. "The output effect of fiscal consolidations," CEPR Discussion Papers 9105, C.E.P.R. Discussion Papers.
    4. 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.
    5. Bredemeier, Christian & Juessen, Falko & Winkler, Roland, 2017. "Man-cessions, fiscal policy, and the gender composition of employment," Economics Letters, Elsevier, vol. 158(C), pages 73-76.
    6. Cloyne, James & Surico, Paolo, 2013. "Household Debt and the Dynamic Effects of Income Tax Changes," CEPR Discussion Papers 9649, C.E.P.R. Discussion Papers.
    7. Alesina, Alberto & Favero, Carlo & Giavazzi, Francesco, 2015. "The output effect of fiscal consolidation plans," Journal of International Economics, Elsevier, vol. 96(S1), pages 19-42.
    8. Luiz de Mello, 2013. "What Can Fiscal Policy Do in the Current Recession? A Review of Recent Literature and Policy Options," Hacienda Pública Española, IEF, vol. 204(1), pages 113-139, March.
    9. Kevin Fletcher & Damiano Sandri, 2015. "How Delaying Fiscal Consolidation Affects the Present Value of GDP," IMF Working Papers 15/52, International Monetary Fund.
    10. Pieroni, Luca & Lorusso, Marco, 2013. "The Role of Fiscal Policy Components in Private Consumption: a Re-examination of the Effects of Military and Civilian Spending," MPRA Paper 47878, University Library of Munich, Germany.

    More about this item


    Fiscal Policy; Household consumption; Labor Supply; PSID;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    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:cpr:ceprdp:8846. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.