IDEAS home Printed from https://ideas.repec.org/p/fip/fedlwp/2015-026.html
   My bibliography  Save this paper

Local Fiscal Multipliers, Negative Spillovers and the Macroeconomy

Author

Abstract

This paper analyzes the impact of within-state military spending and national military spending on a state's employment. I estimate that, while within-state spending increases that state's employment (i.e., a positive local effect), an increase in national military spending ceteris paribus decreases employment in the state (i.e., a negative spillover effect). The combined local and spillover effects imply an aggregate employment effect that is close to zero. The estimates are consistent with a resource reallocation explanation: Persons take jobs in or move to a state with increased military spending, but they leave when increased out-of-state military spending creates opportunities elsewhere. I find support for this interpretation based on estimates of population changes by demographic groups in response to spending shocks.

Suggested Citation

  • Bill Dupor, 2015. "Local Fiscal Multipliers, Negative Spillovers and the Macroeconomy," Working Papers 2015-26, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2015-026
    as

    Download full text from publisher

    File URL: https://research.stlouisfed.org/wp/2015/2015-026.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Daniel J. Wilson, 2012. "Fiscal Spending Jobs Multipliers: Evidence from the 2009 American Recovery and Reinvestment Act," American Economic Journal: Economic Policy, American Economic Association, vol. 4(3), pages 251-282, August.
    2. 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.
    3. 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, November.
    4. Jeffrey Clemens & Stephen Miran, 2012. "Fiscal Policy Multipliers on Subnational Government Spending," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 46-68, May.
    5. Bill Dupor & Peter B. McCrory, 2018. "A Cup Runneth Over: Fiscal Policy Spillovers from the 2009 Recovery Act," Economic Journal, Royal Economic Society, vol. 128(611), pages 1476-1508, June.
    6. Enrico Moretti, 2014. "Local Economic Development, Agglomeration Economies, and the Big Push: 100 Years of Evidence from the Tennessee Valley Authority," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(1), pages 275-331.
    7. 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.
    8. 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.
    9. Dupor, Bill & Li, Rong, 2015. "The expected inflation channel of government spending in the postwar U.S," European Economic Review, Elsevier, vol. 74(C), pages 36-56.
    10. Jeffrey Clemens & Stephen Miran, 2012. "Fiscal Policy Multipliers on Subnational Government Spending," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 46-68, May.
    11. Steven J. Davis & Prakash Lougani & Ramamohan Mahidhara, 1997. "Regional Labor Fluctuations: Oil Shocks, Military Spending, and Other Driving Forces," JCPR Working Papers 4, Northwestern University/University of Chicago Joint Center for Poverty Research.
    12. 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.
    13. Hooker, Mark A & Knetter, Michael M, 1997. "The Effects of Military Spending on Economic Activity: Evidence from State Procurement Spending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 400-421, August.
    14. 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.
    15. repec:oup:qjecon:v:129:y:2013:i:1:p:275-331 is not listed on IDEAS
    16. Andrews,Donald W. K. & Stock,James H. (ed.), 2005. "Identification and Inference for Econometric Models," Cambridge Books, Cambridge University Press, number 9780521844413, October.
    17. Conley, Timothy G. & Dupor, Bill, 2013. "The American Recovery and Reinvestment Act: Solely a government jobs program?," Journal of Monetary Economics, Elsevier, vol. 60(5), pages 535-549.
    18. Valerie Ramey & Sarah Zubairy & Michael Owyang, 2013. "Are Government Spending Multipliers State Dependent? Evidence from U.S. and Canadian Historical Data," 2013 Meeting Papers 290, Society for Economic Dynamics.
    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. Gerritse, Michiel & Rodríguez-Pose, Andrés, 2018. "Does federal contracting spur development? Federal contracts, income, output, and jobs in US cities," Journal of Urban Economics, Elsevier, vol. 107(C), pages 121-135.
    2. Christopher Biolsi, 2019. "Local Effects of a Military Spending Shock: Evidence from Shipbuilding in the 1930s," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 227-248, April.

    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. Dupor, Bill & Guerrero, Rodrigo, 2017. "Local and aggregate fiscal policy multipliers," Journal of Monetary Economics, Elsevier, vol. 92(C), pages 16-30.
    2. Bessho, Shun-ichiro, 2021. "Local fiscal multipliers and population aging in Japan," Japan and the World Economy, Elsevier, vol. 60(C).
    3. Buchheim, Lukas & Watzinger, Martin, 2017. "The Employment Effects of Countercyclical Infrastructure Investments," Discussion Papers in Economics 34877, University of Munich, Department of Economics.
    4. Gabriel Chodorow-Reich, 2017. "Geographic Cross-Sectional Fiscal Multipliers: What Have We Learned?," 2017 Meeting Papers 1214, Society for Economic Dynamics.
    5. 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.
    6. 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.
    7. Bill Dupor & Guerrero Rodrigo, 2017. "The Aggregate and Relative Economic Effects of Government Financed Health Care," Working Papers 2017-27, Federal Reserve Bank of St. Louis.
    8. Wilhelm, Matthias & Buchheim, Lukas & Watzinger, Martin, 2016. "Investment in Photovoltaics and Job Creation: Evidence from a Billion Dollar Program," VfS Annual Conference 2016 (Augsburg): Demographic Change 145551, Verein für Socialpolitik / German Economic Association.
    9. 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.
    10. Gerald Carlino & Robert P. Inman, 2013. "Macro Fiscal Policy in Economic Unions: States as Agents," NBER Working Papers 19559, National Bureau of Economic Research, Inc.
    11. Atems, Bebonchu, 2019. "The effects of government spending shocks: Evidence from U.S. states," Regional Science and Urban Economics, Elsevier, vol. 74(C), pages 65-80.
    12. Juan Serrato & Philippe Wingender, 2016. "Estimating Local Fiscal Multipliers," Working Papers id:11109, eSocialSciences.
    13. Kameda, Taisuke & Namba, Ryoichi & Tsuruga, Takayuki, 2021. "Decomposing local fiscal multipliers: Evidence from Japan," Japan and the World Economy, Elsevier, vol. 57(C).
    14. Matteo Ficarra, 2024. "Public Spending, Green Growth, and Corruption: a Local Fiscal Multiplier Analysis for Italian Provinces," IHEID Working Papers 11-2024, Economics Section, The Graduate Institute of International Studies.
    15. 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.
    16. Gerritse, Michiel & Rodríguez-Pose, Andrés, 2018. "Does federal contracting spur development? Federal contracts, income, output, and jobs in US cities," Journal of Urban Economics, Elsevier, vol. 107(C), pages 121-135.
    17. Christopher E. Boehm, 2016. "Government Spending and Durable Goods," CESifo Working Paper Series 6244, CESifo.
    18. Mr. Alejandro Izquierdo & Mr. Ruy Lama & Juan Pablo Medina & Jorge Puig & Daniel Riera-Crichton & Mr. Carlos A. Végh Gramont & Guillermo Javier Vuletin, 2019. "Is the Public Investment Multiplier Higher in Developing Countries? An Empirical Exploration," IMF Working Papers 2019/289, International Monetary Fund.
    19. Manuel Adelino & Igor Cunha & Miguel A. Ferreira, 2017. "The Economic Effects of Public Financing: Evidence from Municipal Bond Ratings Recalibration," The Review of Financial Studies, Society for Financial Studies, vol. 30(9), pages 3223-3268.
    20. Aart Kraay, 2014. "Government Spending Multipliers in Developing Countries: Evidence from Lending by Official Creditors," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(4), pages 170-208, October.

    More about this item

    Keywords

    Fiscal policy; local fiscal multipliers; spillovers;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:fip:fedlwp:2015-026. 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: Anna Oates (email available below). General contact details of provider: https://edirc.repec.org/data/frbslus.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.