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Who benefits from increased government spending? a state-level analysis

Author

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  • Michael T. Owyang
  • Sarah Zubairy
Abstract
We simultaneously identify two government spending shocks: military spending shocks as defined by Ramey (2008) and federal spending shocks as defined by Perotti (2008). We analyze the effect of these shocks on state-level personal income and employment. We find regional patterns in the manner in which both shocks affect state-level variables. Moreover, we find differences in the propagation mechanisms for military versus nonmilitary spending shocks. The former benefits economies with larger manufacturing and retail sectors and states that receive military contracts. While nonmilitary shocks also benefit states with the proper industrial mix, they appear to stimulate economic activity in more-urban, lower-income states.

Suggested Citation

  • Michael T. Owyang & Sarah Zubairy, 2009. "Who benefits from increased government spending? a state-level analysis," Working Papers 2009-006, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2009-006
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    References listed on IDEAS

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    Cited by:

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    3. Emily Anderson & Atsushi Inoue & Barbara Rossi, 2016. "Heterogeneous Consumers and Fiscal Policy Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(8), pages 1877-1888, December.
    4. David T. Mitchell & Danny R. Hughes & Noel D. Campbell, 2014. "Are Powerful Majorities Inefficient for Parties and Efficient for Taxpayers?," Public Finance Review, , vol. 42(1), pages 117-138, January.
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    6. Fazzari Steven M. & Morley James & Panovska Irina, 2015. "State-dependent effects of fiscal policy," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 19(3), pages 285-315, June.
    7. Piotr Krajewski, 2017. "Regionalne zróżnicowanie oddziaływania wydatków rządowych na zatrudnienie – wnioski z analizy SVAR," Bank i Kredyt, Narodowy Bank Polski, vol. 48(1), pages 73-96.
    8. Haroon Mumtaz & Laura Sunder‐Plassmann & Angeliki Theophilopoulou, 2018. "The State‐Level Impact of Uncertainty Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(8), pages 1879-1899, December.
    9. Igor Ézio Maciel Silva, 2016. "The Differential Regional Effects Of Monetary And Fiscal Policies In Brazil," Anais do XLII Encontro Nacional de Economia [Proceedings of the 42nd Brazilian Economics Meeting] 040, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    10. Eunseong Ma, 2019. "The Heterogeneous Responses of Consumption between Poor and Rich to Government Spending Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(7), pages 1999-2028, October.
    11. Tomomi Miyazaki & Haruo Kondoh, 2022. "Effects of Monetary and Fiscal Policy Interactions on Regional Employment: Evidence from Japan," Discussion Papers 2206, Graduate School of Economics, Kobe University.
    12. Anping Chen & Nicolaas Groenewold, 2022. "Regional Resilience in China: The Response of the Provinces to the Growth Slowdown," The Review of Regional Studies, Southern Regional Science Association, vol. 52(1), pages 74-103.
    13. Anping Chen & Nicolaas Groenewold, 2019. "The effects of China’s growth slowdown on its provinces: Disentangling the sources," Growth and Change, Wiley Blackwell, vol. 50(4), pages 1260-1279, December.
    14. Christopher Biolsi & Bocong Du, 2020. "Do shocks to animal spirits cause output fluctuations?," Southern Economic Journal, John Wiley & Sons, vol. 87(1), pages 331-368, July.
    15. Haroon Mumtaz & Laura Sunder‐Plassmann, 2021. "Nonlinear effects of government spending shocks in the USA: Evidence from state‐level data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 36(1), pages 86-97, January.
    16. Masud Alam, 2021. "Heterogeneous Responses to the U.S. Narrative Tax Changes: Evidence from the U.S. States," Papers 2107.13678, arXiv.org.
    17. Herrera, Ana María & Rangaraju, Sandeep Kumar, 2019. "The quantitative effects of tax foresight: Not all states are equal," Journal of Economic Dynamics and Control, Elsevier, vol. 107(C), pages 1-1.
    18. Miyazaki, Tomomi & Hiraga, Kazuki & Kozuka, Masafumi, 2024. "Stock market response to public investment under the zero lower bound: Cross-industry evidence from Japan," Journal of the Japanese and International Economies, Elsevier, vol. 71(C).
    19. Xin Sheng & Rangan Gupta, 2022. "The State-Level Nonlinear Effects of Government Spending Shocks in the US: The Role of Partisan Conflict," Sustainability, MDPI, vol. 14(18), pages 1-9, September.
    20. Steven Fazzari & James Morley & Irina Panovska, 2013. "State-Dependent Effects of Fiscal Policy," Discussion Papers 2012-27B, School of Economics, The University of New South Wales.
    21. Ageliki Anagnostou & Piotr Krajewski & Katarzyna Pilat, 2020. "Regional Specific Idiosyncrasies and Fiscal Policy: Evidence from 47 Regions of the Central and Eastern European Countries," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 1), pages 936-954.
    22. Steven Fazzari & James Morley & Irina Panovska, 2013. "State-Dependent Effects of Fiscal Policy," Discussion Papers 2012-27A, School of Economics, The University of New South Wales.

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    More about this item

    Keywords

    Government spending policy; Expenditures; Public;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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