Nonlinear effects of government spending shocks in the USA: Evidence from state‐level data

Summary This paper uses state‐level data to estimate the effect of government spending shocks during expansions and recessions. By employing a mixed‐frequency framework, we are able to include a long span of annual state‐level government spending data in our nonlinear quarterly panel VAR model. We f...

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Bibliographic Details
Published inJournal of applied econometrics (Chichester, England) Vol. 36; no. 1; pp. 86 - 97
Main Authors Mumtaz, Haroon, Sunder‐Plassmann, Laura
Format Journal Article
LanguageEnglish
Published Chichester Wiley Periodicals Inc 01.01.2021
Subjects
Agribusiness
Business cycles
Econometrics
Government spending
Heterogeneity
Mining
Nonlinearity
Recessions
United States > US
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Summary:Summary This paper uses state‐level data to estimate the effect of government spending shocks during expansions and recessions. By employing a mixed‐frequency framework, we are able to include a long span of annual state‐level government spending data in our nonlinear quarterly panel VAR model. We find evidence that for the average state the fiscal multiplier is larger during recessions. However, there is substantial heterogeneity across the cross‐section. The degree of nonlinearity in the effect of spending shocks is larger in states that are subject to a higher degree of financial frictions. In contrast, states with a prevalence of manufacturing, mining and agricultural industries tend to have multipliers that are more similar across business cycle phases.
Bibliography:ObjectType-Article-1
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ISSN:0883-7252
1099-1255
DOI:10.1002/jae.2800