Working Paper

Who benefits from increased government spending? a state-level analysis

Abstract: We simultaneously identify two government spending shocks: military spending shocks as defined by Ramey (2008) and federal spending shocks as defined by Perotti (2008). We analyze the effect of these shocks on state-level personal income and employment. We find regional patterns in the manner in which both shocks affect state-level variables. Moreover, we find differences in the propagation mechanisms for military versus nonmilitary spending shocks. The former benefits economies with larger manufacturing and retail sectors and states that receive military contracts. While nonmilitary shocks also benefit states with the proper industrial mix, they appear to stimulate economic activity in more-urban, lower-income states.

Keywords: Government spending policy; Expenditures, Public;

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2009

Number: 2009-006