Cyclical Government Spending: Theory and Empirics

Mafia and public spending: evidence on the fiscal multiplier from a quasi-experiment

Jordan Roulleau-Pasdeloup

The Economic Journal, 2021, vol. 131, issue 640, 3392-3416

Abstract: This paper shows that part of what is usually labelled discretionary government spending actually varies systematically over the cycle. I exploit the pervasive gap between ordinary least squares and two-stage least squares local government spending multipliers to estimate how cyclical the systematic part of government spending is. Estimating a structural open-economy New Keynesian model on United States state-level data, I find that when employment decreases by , the systematic component of government spending decreases by . I also find that the empirical specification in Nakamura and Steinsson, ‘Fiscal Stimulus in a monetary union’ (American Economic Review, 2014) does a good job in recovering the true impact multiplier effect, but that it overestimates the long-run cumulative effect.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:oup:econjl:v:131:y:2021:i:640:p:3392-3416.

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