Geographic Cross-Sectional Fiscal Spending Multipliers: What Have We Learned?

Abstract:

A geographic cross-sectional fiscal spending multiplier measures the effect of an increase in spending in one region in a monetary union. Empirical studies of such multipliers have proliferated in recent years. I review this research and what the evidence implies for national multipliers. Based on an updated analysis of the American Recovery and Reinvestment Act and a survey of empirical studies, my preferred point estimate for a cross-sectional output multiplier is 1.8. Drawing on a complementary theoretical literature, the paper discusses conditions under which the cross-sectional multiplier provides a rough lower bound for a particular national multiplier, the closed economy, no-monetary-policy-response fiscal spending multiplier. Putting these elements together, the cross-sectional evidence suggests a national no-monetary-policy-response multiplier of about 1.7 or above. The paper concludes by offering suggestions for future research on cross-sectional multipliers.

Last updated on 07/29/2018