Regional Consumption Responses and the Aggregate Fiscal Multiplier

Bill Dupor (), Marios Karabarbounis (), Marianna Kudlyak and M. Saif Mehkari ()
Additional contact information
Bill Dupor: Federal Reserve Bank of St. Louis
Marios Karabarbounis: Federal Reserve Bank of Richmond
M. Saif Mehkari: University of Richmond

No 15255, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We use regional variation in the American Recovery and Reinvestment Act (2009-2012) to analyze the effect of government spending on consumer spending. Our consumption data come from household-level retail purchases in the Nielsen scanner data and auto purchases from Equifax credit balances. We estimate that a $1 increase in county-level government spending increases local non-durable consumer spending by $0.29 and local auto spending by $0.09. We translate the regional consumption responses to an aggregate fiscal multiplier using a multi-region, New Keynesian model with heterogeneous agents, incomplete markets, and trade linkages. Our model is consistent with the estimated positive local multiplier, a result that distinguishes our incomplete markets model from models with complete markets. At the zero lower bound, the aggregate consumption multiplier is twice as large as the local multiplier because trade linkages propagate the effect of government spending across regions.

Keywords: fiscal multiplier; regional variation; heterogeneous agents; consumer spending (search for similar items in EconPapers)
JEL-codes: E21 E62 H31 H71 (search for similar items in EconPapers)
Pages: 79 pages
Date: 2022-04
New Economics Papers: this item is included in nep-dge, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published - published in: Review of Economic Studies, 2023, 90 (6), 2982–3021,

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Related works:
Journal Article: Regional Consumption Responses and the Aggregate Fiscal Multiplier (2023)
Working Paper: Regional Consumption Responses and the Aggregate Fiscal Multiplier (2022)
Working Paper: Regional Consumption Responses and the Aggregate Fiscal Multiplier (2022)
Working Paper: Regional Consumption Responses and the Aggregate Fiscal Multiplier (2018)
Working Paper: Regional Consumption Responses and the Aggregate Fiscal Multiplier (2018)
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