IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp15255.html
   My bibliography  Save this paper

Regional Consumption Responses and the Aggregate Fiscal Multiplier

Author

Listed:
  • Dupor, Bill

    (Federal Reserve Bank of St. Louis)

  • Karabarbounis, Marios

    (Federal Reserve Bank of Richmond)

  • Kudlyak, Marianna

    (Federal Reserve Bank of San Francisco)

  • Mehkari, M. Saif

    (University of Richmond)

Abstract

We use regional variation in the American Recovery and Reinvestment Act (2009-2012) to analyze the effect of government spending on consumer spending. Our consumption data come from household-level retail purchases in the Nielsen scanner data and auto purchases from Equifax credit balances. We estimate that a $1 increase in county-level government spending increases local non-durable consumer spending by $0.29 and local auto spending by $0.09. We translate the regional consumption responses to an aggregate fiscal multiplier using a multi-region, New Keynesian model with heterogeneous agents, incomplete markets, and trade linkages. Our model is consistent with the estimated positive local multiplier, a result that distinguishes our incomplete markets model from models with complete markets. At the zero lower bound, the aggregate consumption multiplier is twice as large as the local multiplier because trade linkages propagate the effect of government spending across regions.

Suggested Citation

  • Dupor, Bill & Karabarbounis, Marios & Kudlyak, Marianna & Mehkari, M. Saif, 2022. "Regional Consumption Responses and the Aggregate Fiscal Multiplier," IZA Discussion Papers 15255, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp15255
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp15255.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    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. Chris Boone & Arindrajit Dube & Ethan Kaplan, 2014. "The Political Economy of Discretionary Spending: Evidence from the American Recovery and Reinvestment Act," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 45(1 (Spring), pages 375-441.
    3. 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.
    4. House, Christopher L. & Proebsting, Christian & Tesar, Linda L., 2020. "Austerity in the aftermath of the great recession," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 37-63.
    5. Claudia R. Sahm & Matthew D. Shapiro & Joel Slemrod, 2010. "Household Response to the 2008 Tax Rebate: Survey Evidence and Aggregate Implications," NBER Chapters, in: Tax Policy and the Economy, Volume 24, pages 69-110, National Bureau of Economic Research, Inc.
    6. Gabriel Chodorow-Reich, 2019. "Geographic Cross-Sectional Fiscal Spending Multipliers: What Have We Learned?," American Economic Journal: Economic Policy, American Economic Association, vol. 11(2), pages 1-34, May.
    7. Anmol Bhandari & David Evans & Mikhail Golosov & Thomas J. Sargent, 2018. "Inequality, Business Cycles, and Monetary-Fiscal Policy," NBER Working Papers 24710, National Bureau of Economic Research, Inc.
    8. Claudia R. Sahm & Matthew D. Shapiro & Joel Slemrod, 2012. "Check in the Mail or More in the Paycheck: Does the Effectiveness of Fiscal Stimulus Depend on How It Is Delivered?," American Economic Journal: Economic Policy, American Economic Association, vol. 4(3), pages 216-250, August.
    9. 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.
    10. Dupor, Bill & Mehkari, M. Saif, 2016. "The 2009 Recovery Act: Stimulus at the extensive and intensive labor margins," European Economic Review, Elsevier, vol. 85(C), pages 208-228.
    11. Krueger, D. & Mitman, K. & Perri, F., 2016. "Macroeconomics and Household Heterogeneity," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 843-921, Elsevier.
    12. 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.
    13. 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.
    14. 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.
    15. Oh, Hyunseung & Reis, Ricardo, 2012. "Targeted transfers and the fiscal response to the great recession," Journal of Monetary Economics, Elsevier, vol. 59(S), pages 50-64.
    16. Kaplan, Greg & Mitman, Kurt & Violante, Giovanni L., 2020. "Non-durable consumption and housing net worth in the Great Recession: Evidence from easily accessible data," Journal of Public Economics, Elsevier, vol. 189(C).
    17. Bill Dupor & M. Saif Mehkari, 2020. "Schools and Stimulus," Review, Federal Reserve Bank of St. Louis, vol. 102(2), pages 145-171, May.
    18. Alisdair McKay & Emi Nakamura & Jón Steinsson, 2016. "The Power of Forward Guidance Revisited," American Economic Review, American Economic Association, vol. 106(10), pages 3133-3158, October.
    19. Greg Kaplan & Giovanni L. Violante, 2014. "A Model of the Consumption Response to Fiscal Stimulus Payments," Econometrica, Econometric Society, vol. 82(4), pages 1199-1239, July.
    20. Martin Floden & Jesper Lindé, 2001. "Idiosyncratic Risk in the United States and Sweden: Is There a Role for Government Insurance?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 406-437, July.
    21. Sylvain Leduc & Daniel Wilson, 2017. "Are State Governments Roadblocks to Federal Stimulus? Evidence on the Flypaper Effect of Highway Grants in the 2009 Recovery Act," American Economic Journal: Economic Policy, American Economic Association, vol. 9(2), pages 253-292, May.
    22. 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.
    23. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1329-1368.
    24. Chris Boone & Arindrajit Dube & Ethan Kaplan, 2014. "The Political Economy of Discretionary Spending: Evidence from the American Recovery and Reinvestment Act," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 48(1 (Spring), pages 375-441.
    25. 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.
    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. Bhattarai, Saroj & Schwartzman, Felipe & Yang, Choongryul, 2021. "Local scars of the US housing crisis," Journal of Monetary Economics, Elsevier, vol. 119(C), pages 40-57.
    2. Mario Crucini & Nam Vu, 2021. "Did the American Recovery and Reinvestment Act Help Counties Most Affected by the Great Recession?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 42, pages 264-282, October.
    3. Christopher L. House & Christian Proebsting & Linda L. Tesar, 2020. "Regional Effects of Exchange Rate Fluctuations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(S2), pages 429-463, December.
    4. Kartik B. Athreya & Ryan Mather & Jose Mustre-del-Rio & Juan M. Sanchez, 2020. "Household Financial Distress and the Burden of ‘Aggregate’ Shocks," Research Working Paper RWP 20-13, Federal Reserve Bank of Kansas City.
    5. Gerald Carlino & Nicholas Zarra & Robert Inman & Thorsten Drautzburg, 2019. "Fiscal Policy in Monetary Unions: State Partisanship and its Macroeconomic Effects," 2019 Meeting Papers 434, Society for Economic Dynamics.
    6. Jean‐François Houde & Peter Newberry & Katja Seim, 2023. "Nexus Tax Laws and Economies of Density in E‐Commerce: A Study of Amazon's Fulfillment Center Network," Econometrica, Econometric Society, vol. 91(1), pages 147-190, January.
    7. Yongsung Chang & Yena Park, 2021. "Optimal Taxation with Private Insurance [Uninsured Idiosyncratic Risk and Aggregate Saving]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(6), pages 2766-2798.
    8. Chodorow-Reich, Gabriel, 2020. "Regional data in macroeconomics: Some advice for practitioners," Journal of Economic Dynamics and Control, Elsevier, vol. 115(C).
    9. Kurt Mitman & Iourii Manovskii & Marcus Hagedorn, 2017. "The Fiscal Multiplier," 2017 Meeting Papers 1383, Society for Economic Dynamics.
    10. Christopher Biolsi & Alex Lebedinsky, 2021. "Can changes in sentiments influence consumer behavior? Evidence from the Trump‐Russia investigation," Economic Inquiry, Western Economic Association International, vol. 59(4), pages 1569-1592, October.
    11. J. Anthony Cookson & Erik P. Gilje & Rawley Z. Heimer, 2020. "Shale Shocked: Cash Windfalls and Household Debt Repayment," NBER Working Papers 27782, National Bureau of Economic Research, Inc.
    12. Adrien Auclert & Will S. Dobbie & Paul Goldsmith-Pinkham, 2019. "Macroeconomic Effects of Debt Relief: Consumer Bankruptcy Protections in the Great Recession," NBER Working Papers 25685, National Bureau of Economic Research, Inc.
    13. Darracq Pariès, Matthieu & Notarpietro, Alessandro & Kilponen, Juha & Papadopoulou, Niki & Zimic, Srečko & Aldama, Pierre & Langenus, Geert & Alvarez, Luis Julian & Lemoine, Matthieu & Angelini, Elena, 2021. "Review of macroeconomic modelling in the Eurosystem: current practices and scope for improvement," Occasional Paper Series 267, European Central Bank.
    14. Fátima Cardoso & Manuel Coutinho Pereira & Nuno Alves, 2020. "Heterogeneous response of consumers to income shocks throughout a financial assistance program," Working Papers w202018, Banco de Portugal, Economics and Research Department.
    15. Alan J. Auerbach & Yuriy Gorodnichenko & Daniel Murphy, 2019. "Macroeconomic Frameworks," NBER Working Papers 26365, National Bureau of Economic Research, Inc.
    16. Faia, Ester & Kudlyak, Marianna & Shabalina, Ekaterina, 2021. "Dynamic Labor Reallocation with Heterogeneous Skills and Uninsured Idiosyncratic Risk," IZA Discussion Papers 14794, Institute of Labor Economics (IZA).
    17. Nguyen, Thuy Lan, 2020. "Comments on “Regional Data in Macroeconomics: Advice for Practitioners”," Journal of Economic Dynamics and Control, Elsevier, vol. 115(C).
    18. Gabriel Chodorow-Reich & Plamen T. Nenov & Alp Simsek, 2021. "Stock Market Wealth and the Real Economy: A Local Labor Market Approach," American Economic Review, American Economic Association, vol. 111(5), pages 1613-1657, May.
    19. Marco Bellifemine & Adrien Couturier & Rustam Jamilov, 2022. "The Regional Keynesian Cross," Economics Series Working Papers 995, University of Oxford, Department of Economics.
    20. McCrory, Peter B, 2020. "Tradable Spillovers of Fiscal Policy: Evidence from the 2009 Recovery Act," Institute for Research on Labor and Employment, Working Paper Series qt04n482qf, Institute of Industrial Relations, UC Berkeley.
    21. Timothy G. Conley & Bill Dupor & Rong Li & Yijiang Zhou, 2023. "Decomposing the Government Transfer Multiplier," Working Papers 2023-017, Federal Reserve Bank of St. Louis, revised 17 Nov 2023.
    22. 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. Gabriel Chodorow-Reich, 2017. "Geographic Cross-Sectional Fiscal Multipliers: What Have We Learned?," Working Paper 458091, Harvard University OpenScholar.
    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. Sergio Destefanis & Mario Di Serio & Matteo Fragetta, 2022. "Regional multipliers across the Italian regions," Journal of Regional Science, Wiley Blackwell, vol. 62(4), pages 1179-1205, September.
    4. 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.
    5. McCrory, Peter B, 2020. "Tradable Spillovers of Fiscal Policy: Evidence from the 2009 Recovery Act," Institute for Research on Labor and Employment, Working Paper Series qt04n482qf, Institute of Industrial Relations, UC Berkeley.
    6. 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.
    7. Emi Nakamura & Jón Steinsson, 2018. "Identification in Macroeconomics," Journal of Economic Perspectives, American Economic Association, vol. 32(3), pages 59-86, Summer.
    8. Joonkyu Choi & Veronika Penciakova & Felipe Saffie, 2021. "Political Connections, Allocation of Stimulus Spending, and the Jobs Multiplier," FRB Atlanta Working Paper 2021-13, Federal Reserve Bank of Atlanta.
    9. Gerald Carlino & Thorsten Drautzburg & Robert Inman & Nicholas Zarra, 2023. "Partisanship and Fiscal Policy in Economic Unions: Evidence from US States," American Economic Review, American Economic Association, vol. 113(3), pages 701-737, March.
    10. Mario Crucini & Nam Vu, 2021. "Did the American Recovery and Reinvestment Act Help Counties Most Affected by the Great Recession?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 42, pages 264-282, October.
    11. Tomomi Miyazaki & Haruo Kondoh, 2022. "Effects of Monetary and Fiscal Policy Interactions on Regional Employment: Evidence from Japan," Discussion Papers 2206, Graduate School of Economics, Kobe University.
    12. Gerald Carlino & Robert P. Inman, 2016. "Fiscal Stimulus in Economic Unions: What Role for States?," Tax Policy and the Economy, University of Chicago Press, vol. 30(1), pages 1-50.
    13. Valerie A. Ramey, 2020. "The Macroeconomic Consequences of Infrastructure Investment," NBER Chapters, in: Economic Analysis and Infrastructure Investment, pages 219-268, National Bureau of Economic Research, Inc.
    14. Mario Alloza & Carlos Sanz, 2021. "Jobs Multipliers: Evidence from a Large Fiscal Stimulus in Spain," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(3), pages 751-779, July.
    15. Mr. Tidiane Kinda & Andras Lengyel & Kaustubh Chahande, 2022. "Fiscal Multipliers During Pandemics," IMF Working Papers 2022/149, International Monetary Fund.
    16. Giovanna Ciaffi & Matteo Deleidi & Enrico Sergio Levrero, 2022. "The Macroeconomic Impact of Public Spending in Research and Development: An Initial Exploration for G7 and 15 Oecd Countries," Bulletin of Political Economy, Bulletin of Political Economy, vol. 16(1), pages 1-19, June.
    17. Dupor, Bill & Guerrero, Rodrigo, 2017. "Local and aggregate fiscal policy multipliers," Journal of Monetary Economics, Elsevier, vol. 92(C), pages 16-30.
    18. George Kapetanios & Panagiotis Koutroumpis & Christopher Tsoukis, 2022. "Expansionary and contractionary fiscal multipliers in the U.S," Working Papers 939, Queen Mary University of London, School of Economics and Finance.
    19. Christian Bredemeier & Falko Juessen & Roland Winkler, 2020. "Fiscal Policy and Occupational Employment Dynamics," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(6), pages 1527-1563, September.
    20. Bessho, Shun-ichiro, 2021. "Local fiscal multipliers and population aging in Japan," Japan and the World Economy, Elsevier, vol. 60(C).

    More about this item

    Keywords

    consumer spending; fiscal multiplier; regional variation; heterogeneous agents;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

    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:iza:izadps:dp15255. 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: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.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.