A Note on State-Level Nonlinear Effects of Government Spending Shocks in the US: The Role of Partisan Conflict

Xin Sheng () and Rangan Gupta
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Xin Sheng: Lord Ashcroft International Business School, Anglia Ruskin University, Chelmsford, United Kingdom

No 202187, Working Papers from University of Pretoria, Department of Economics

Abstract: Utilising a nonlinear (regime-switching) mixed-frequency panel vector autoregression model, we study the effects of government spending shocks in the United States (US) over the business cycle, while considering the role of partisan conflict. In particular, we investigate whether partisan conflict is relevant to the differences in fiscal spending multipliers in expansionary and recessionary business cycle phases upon the impact of annual government spending shocks using quarterly state-level data covering 1950:Q1 to 2016:Q4. We find new evidence that fiscal multipliers can vary with economic and political conditions. The cumulated effects of government spending shocks are strong and persistent in recessions when the level of partisan conflict is low.

Keywords: Government Spending Shocks; Fiscal Policy Multiplier; Partisan Conflict; Panel Analysis; Vector Autoregressions; Mixed-Frequency (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 H3 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2021-12
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:202187

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