Local Fiscal Multipliers and Fiscal Spillovers in the USA

We estimate local fiscal multipliers and spillovers for the USA using a rich dataset based on the US Department of Defense contracts and a variety of outcome variables relating to income and employment. We find strong positive spillovers across locations and industries. Both backward linkages and ge...

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Bibliographic Details
Published in:IMF economic review 2020-04, Vol.68 (1), p.195-229
Main Authors: Auerbach, Alan, Gorodnichenko, Yuriy, Murphy, Daniel
Format: Article
Language:English
Subjects:
Aerospace industry
Aircraft industry
Analysis
Capital Markets
Defense contracts
Economic impact
Economic Policy
Economics
Economics and Finance
Employment
Externalities (Economics)
Fiscal policy
International Economics
Interpretation and construction
Keynesian theory
Macroeconomics/Monetary Economics//Financial Economics
Multiplier effect (Economics)
Research Article
United States economic conditions
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Summary:We estimate local fiscal multipliers and spillovers for the USA using a rich dataset based on the US Department of Defense contracts and a variety of outcome variables relating to income and employment. We find strong positive spillovers across locations and industries. Both backward linkages and general equilibrium effects (e.g., income multipliers) contribute to the positive spillovers. Geographical spillovers appear to dissipate fairly quickly with distance. Our evidence points to the relevance of Keynesian-type models that feature excess capacity.
ISSN:2041-4161
2041-417X
DOI:10.1057/s41308-019-00102-3