Regional Consumption Responses and the Aggregate Fiscal Multiplier
Bill Dupor, Marios Karabarbounis, Marianna Kudlyak, and Saif M. Mehkari, FRB SF Working Paper No. 2018-04. Accepted at Review of Economic Studies
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 multiregional, 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.
Presentations: ESEM, Cologne, Germany (Aug 2018, by Kudlyak), Barcelona Summer Forum 2018 (June 2018, by Kudlyak) , 5th WB-BE Research Conference Macroeconomic Policies, Output Fluctuations, and Long-Term Growth (June 2018, Dupor),Columbia University (April, by Karabarbounis), Midwest Macro (May 2018, by Kudlyak, Slides), System Macro (Apr 2018, by Karabarbounis), SED, Edinburgh (June 2017, by Karabarbounis), The 31st Congress of European Economic Association (Aug 2016, by Kudlyak), Society of Economic Dynamics, Toulouse, France (June, 2016, by Dupor), FRBR-UVA Research Jamboree, UVA (May 2016, by Karabarbounis), 6th Ifo Conference on Macroeconomics and Survey Data (Dec 2015, by Karabarbounis)