On December 12, 2019, Fed in Print will introduce its new platform for discovering content. Please direct your questions to Anna Oates

Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of St. Louis
Working Papers
Regional Consumption Responses and the Aggregate Fiscal Multiplier
William D. Dupor
Marios Karabarbounis
Marianna Kudlyak
M. Saif Mehkari
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 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.


Download Full text
Download https://doi.org/10.20955/wp.2018.004
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.
More from this series
JEL Classification:
Subject headings:
Keywords: Consumer Spending; Fiscal Multiplier; Regional Variation; Heterogeneous Agents
DOI: 10.20955/wp.2018.004
For corrections, contact Anna Oates ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal