Fiscal Policy in a Networked Economy

Joel P. Flynn, Christina Patterson and John Sturm

No 29619, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Fiscal stimulus policies propagate through complex and overlapping economic networks. We study their efficacy and targeting in the presence of input-output linkages, regional trade, and household heterogeneity in employment relationships, marginal propensities to consume (MPCs), and consumption baskets. Theoretically, we derive estimable formulae for fiscal multipliers and characterize how network structures determine their size. Empirically, we estimate that multipliers vary substantially across policies, so targeting is important. However, virtually all variation in multipliers stems from differences in policies’ direct incidence onto households’ MPCs. Thus, while policies’ distributional effects depend on network structures, maximally expansionary fiscal policy simply targets households’ MPCs.

JEL-codes: E62 (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-mac, nep-net, nep-pub and nep-ure
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