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Local and aggregate fiscal policy multipliers

Bill Dupor () and Rodrigo Guerrero

Journal of Monetary Economics, 2017, vol. 92, issue C, 16-30

Abstract: Using a newly constructed panel of state-level defense contracts, this paper studies the effect of defense spending on the U.S. macroeconomy. Summing observations across states, we estimate aggregate income and employment multipliers. Comparing these to local multipliers estimated with the panel provides evidence that local multiplier estimates may be reliable indicators of fiscal policy’s aggregate effects. Furthermore, evidence of small positive spillovers is found. Across several specifications, we estimate income and employment multipliers between zero and 0.5. This result is reconciled with the greater-than-one multipliers found in Nakamura and Steinsson (2014) by analyzing the Korean War years’ impact on the estimation.

Keywords: Fiscal policy; Fiscal multipliers; Spillovers (search for similar items in EconPapers)
JEL-codes: E62 H30 H56 H57 (search for similar items in EconPapers)
Date: 2017
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