Non-linear effects of government spending shocks in the US. Evidence from state-level data

Haroon Mumtaz and Laura Sunder-Plassmann
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Laura Sunder-Plassmann: University of Copenhagen

No 841, Working Papers from Queen Mary University of London, School of Economics and Finance

Abstract: This paper uses state-level data to estimate the effect of federal defence spending shocks on state real activity. We find moderately strong evidence that for the average state the fiscal multiplier is larger during recessions. However, there is substantial heterogeneity across the cross-section. The degree of non-linearity in the effect of spending shocks is larger in states that are subject to a higher degree of financial frictions and lower labour market rigidity. In contrast states with a prevalence of mining and agricultural industries tend to have multipliers that are more similar across business cycle phases.

Keywords: Fiscal policy shocks; non-linearity; structural VAR (search for similar items in EconPapers)
JEL-codes: C32 E62 R12 (search for similar items in EconPapers)
Date: 2017-11-26
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (1)

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Journal Article: Nonlinear effects of government spending shocks in the USA: Evidence from state‐level data (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:qmw:qmwecw:841

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