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The Household Effects of Government Spending

  • Giavazzi, Francesco

    (Universita Bocconi, MIT, CEPR & NBER)

  • McMahon, Michael

    (University of Warwick, CEP (LSE) & CAMA (ANU))

This paper provides new evidence on the effects of scal policy by studying, using household-level data, how households respond to shifts in government spending. Our identi cation strategy allows us to control for time-specific aggregate effects, such as the stance of monetary policy or the U.S.-wide business cycle. However, it potentially prevents us from estimating the wealth e ects 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. Key words: Fiscal Policy ; PSID ; Household Consumption ; Labor Supply JEL classification: E62 ; E21 ; E24 ; D12

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2012/twerp_977.pdf
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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 977.

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Date of creation: 2012
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Handle: RePEc:wrk:warwec:977
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  1. 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.
  2. Francesco Giavazzi & Michael McMahon, 2008. "Policy Uncertainty and Precautionary Savings," NBER Working Papers 13911, National Bureau of Economic Research, Inc.
  3. Eric M. Leeper & Nora Traum & Todd B. Walker, 2011. "Clearing Up the Fiscal Multiplier Morass," NBER Working Papers 17444, National Bureau of Economic Research, Inc.
  4. Lilia Maliar & Serguei Maliar, 2002. "The Representative Consumer In The Neoclassical Growth Model With Idiosyncratic Shocks," Working Papers. Serie AD 2002-20, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  5. 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.
  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. Valerio Ercolani, 2010. "The Precautionary Effect of Government Expenditures on Private Consumption," 2010 Meeting Papers 826, Society for Economic Dynamics.
  8. Valerie A. Ramey, 2009. "Identifying Government Spending Shocks: It's All in the Timing," NBER Working Papers 15464, National Bureau of Economic Research, Inc.
  9. Marco Del Negro, 2000. "Asymmetric shocks among U.S. states," Working Paper 2000-27, Federal Reserve Bank of Atlanta.
  10. 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.
  11. 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.
  12. 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.
  13. 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 253-67, April.
  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 753-92, March.
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