On December 12, 2019, Fed in Print will introduce its new platform for discovering content. Please direct your questions to Anna Oates
Federal Reserve Bank of St. Louis
Regional Consumption Responses and the Aggregate Fiscal Multiplier
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 Nielsen and auto purchases from Equifax credit balances. We estimate that a $1 increase in county-level government spending increases consumer spending by $0.29. We translate the regional consumption responses to an aggregate fiscal multiplier using a multi-region, New Keynesian model with heterogeneous agents and incomplete markets. Our model successfully generates the estimated positive local multiplier, a result that distinguishes our incomplete markets model from models with complete markets. The aggregate consumption multiplier is 0.64, which implies an output multiplier higher than one. The aggregate consumption multiplier is larger than the local estimate because trade linkages propagate government spending across regions.
Cite this item
William D. Dupor & Marios Karabarbounis & Marianna Kudlyak & M. Saif Mehkari, Regional Consumption Responses and the Aggregate Fiscal Multiplier, Federal Reserve Bank of St. Louis, Working Papers 2018-4, 16 Mar 2018, revised 13 Aug 2019.
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
Keywords: Consumer Spending; Fiscal Multiplier; Regional Variation; Heterogeneous Agents
This item with handle RePEc:fip:fedlwp:2018-004
is also listed on EconPapers
For corrections, contact Anna Oates ()