We show that aggregate time series estimates of the fiscal multiplier are systematically biased downwards due to features of National income accounting (NIPA). New military spending first enters GDP as private inventory investment rather than government purchases, so NIPA innovations in government spending are delayed, a measurement problem distinct from fiscal foresight. We use budget data and military contracts to build an alternative measure of defense spending, which leads NIPA government spending by 3-4 quarters. We find an accounting-corrected multiplier—output per dollar that will ultimately be spent—of 1.2 on impact and 1 in the medium run.
Note: this paper combines two closely related working papers, one by me and one by Edoardo Briganti and Victor Sellemi. The last version of my individual working paper can be found here.
Why has household saving been so high during the COVID-19 pandemic? What are the likely consequences of this unusual increase in the stock of savings? The only comparable episode in the modern United States is World War II. In this paper we quantify excess household saving during WWII and the COVID-19 pandemic and compare the contributions of various drivers of increased saving. Excess saving totaled 16.8% of personal disposable income during WWII (1941--1945) and 6.8% of personal disposable income during COVID-19 (2020-2021). WWII savings incentives, expansionary fiscal policy, and consumption restrictions explain about 48% of excess saving in WWII. Expansionary fiscal policy and consumption restrictions also explain about 64% of excess saving during the COVID-19 pandemic. WWII saving and related pent-up demand, together with a dramatic decline in uncertainty, played a significant role in fueling the post-WWII boom, suggesting that high pandemic saving may raise consumer demand over the next few years.
Household saving increased dramatically during World War II. By the end of the war, Americans had accumulated substantial liquid assets, largely in the form of war bonds and deposit holdings. This paper examines how wartime accumulation of liquid assets were used by households in the years immediately after World War II, when rationing was relaxed. I exploit geographic variation in wartime saving. Because saving may be endogenous, I use war spending as an instrument for wartime saving. I find that wartime asset accumulation helped fuel a boom in residential investment in the late 1940s. Wartime saving is strongly associated with increases in the housing stock in the immediate postwar years. A 10% increase in wartime saving is associated with a 3.6% to 7.6% increase in the number of housing units in a county between 1940 and 1950.