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Reassessing the Cross-Sectional Fiscal Multiplier: Evidence from U.S. Defense Procurement, 1966-2019

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  • Gianluca Pallante

Abstract

This paper revisits the empirical analysis of Nakamura and Steinsson (2014). I reconstruct and extend the original dataset to cover the period 1966-2019, harmonizing two major sources of data: the Defense Contract Action Data System (DCADS) and USAspending.gov. I discuss how to aggregate these contract-level data to better capture spending more directly tied to domestic stimulus. Estimated multipliers are slightly lower in narrow replications but increase when incorporating later fiscal episodes. I also assess the validity and the stability of cross-sectional estimates. While some heterogeneity exists, dispersion in state-level responses remains within reasonable boundaries, especially when accounting for dynamic persistence.

Suggested Citation

  • Gianluca Pallante, 2025. "Reassessing the Cross-Sectional Fiscal Multiplier: Evidence from U.S. Defense Procurement, 1966-2019," LEM Papers Series 2025/18, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    • Handle: RePEc:ssa:lemwps:2025/18
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    References listed on IDEAS

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    1. Donald W. K. Andrews, 2005. "Cross-Section Regression with Common Shocks," Econometrica, Econometric Society, vol. 73(5), pages 1551-1585, September.
    2. Blanchard, Olivier J. & Romer, David & Spence, Michael & Stiglitz, Joseph E. (ed.), 2012. "In the Wake of the Crisis: Leading Economists Reassess Economic Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 026201761x, December.
    3. Tommaso Ferraresi & Andrea Roventini & Giorgio Fagiolo, 2015. "Fiscal Policies and Credit Regimes: A TVAR Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 30(7), pages 1047-1072, November.
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