Working Paper

Local Fiscal Multipliers, Negative Spillovers and the Macroeconomy

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.

Keywords: Fiscal policy; local fiscal multipliers; spillovers;

JEL Classification: E62;

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2015-09-18

Number: 2015-26