The effect of government spending on local economies during an economic downturn

Johannes Räsänen and Erik Mäkelä

European Economic Review, 2021, vol. 134, issue C

Abstract: This paper provides quasi-experimental evidence on the short-run effects of government spending on subregional output and employment during an economic downturn. Our empirical analysis exploits exogenous regional variation in the Finnish Government consumption expenditures that resulted from the establishments of new asylum centers (in 2015 and 2016) and the contemporary Defense Force reform. We find that a change in local government spending by one percent of local output produces a 1.3 percent change in local output, and EUR100 000 of local government spending creates 1.84 additional jobs. Moreover, our evidence suggests that the output multiplier is asymmetric.

Keywords: Fiscal multipliers; Government spending; Regional development (search for similar items in EconPapers)
JEL-codes: E62 H70 H72 R11 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:134:y:2021:i:c:s0014292121000507

DOI: 10.1016/j.euroecorev.2021.103697

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