The effects of government spending shocks: Evidence from U.S. states
Bebonchu Atems ()
Regional Science and Urban Economics, 2019, vol. 74, issue C, 65-80
Using panel structural VAR analyses and a recently released dataset on quarterly gross domestic product by state, this paper finds that an increase in state spending raises output, employment, and the real wage. Our baseline estimates imply that the multiplier effect of a spending increase on output is 1.3 contemporaneously and 1.2 over three years. The effects, however, vary considerably depending on the economic environment and institutional context. Specifically, we find that (i) the spending multiplier is larger during recessions than expansions (ii) the spending multiplier is relatively larger during periods of low debt than in episodes of high debt; (iii) spending shocks have relatively larger effects on states with “medium” balanced-budget requirements than those with either weak or strong balanced-budget requirements; and (iv) the spending multiplier is relatively smaller for states with either lax or strict debt restriction provisions compared to those with moderate provisions. These differences in the magnitude of the spending multiplier across states with different balanced budget rules and debt restriction provisions are rather small and not always statistically significant.
Keywords: Government spending multiplier; Panel VAR; State-level data (search for similar items in EconPapers)
JEL-codes: E12 E62 H72 R10 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:74:y:2019:i:c:p:65-80
Access Statistics for this article
Regional Science and Urban Economics is currently edited by D.P McMillen and Y. Zenou
More articles in Regional Science and Urban Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().