Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/263471 
Year of Publication: 
2022
Series/Report no.: 
IZA Discussion Papers No. 15255
Publisher: 
Institute of Labor Economics (IZA), Bonn
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.
Subjects: 
consumer spending
fiscal multiplier
regional variation
heterogeneous agents
JEL: 
E21
E62
H31
H71
Document Type: 
Working Paper

Files in This Item:
File
Size
2.75 MB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.