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When Regional Isn’t Aggregate: Joint Estimation of Government Transfer Multipliers

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Abstract

We develop a framework that jointly identifies local and aggregate effects of government transfer shocks with cross-state spillovers. Using the Romer–Romer Social Security transfer-adjustment series and state personal income, we combine aggregate time-series variation with cross-sectional exposure to recover the local, spillover, and aggregate multipliers. The specification is aggregation-consistent: state coefficients sum to the aggregate response, making the decomposition of the national effect into local and spillover components transparent. The aggregate multiplier is positive and roughly half the local multiplier, with both statistically different from zero. Spillover estimates are negative but imprecise. Estimates are robust to controls for business cycle factors.

Suggested Citation

  • Timothy G. Conley & Bill Dupor & Rong Li & Yijiang Zhou, 2025. "When Regional Isn’t Aggregate: Joint Estimation of Government Transfer Multipliers," Working Papers 2025-028, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:101912
    DOI: 10.20955/wp.2025.028
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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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