Download This PaperFiscal Policy in a Networked Economy
92 Pages Posted: 27 Apr 2020 Last revised: 21 Dec 2021
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Fiscal Policy in a Networked Economy
Fiscal Policy in a Networked Economy
Fiscal Policy in a Networked Economy
Date Written: June 10, 2024
Abstract
Fiscal stimulus policies propagate through complex and overlapping economic networks. We study their efficacy and targeting in the presence of input-output linkages, regional trade, and household heterogeneity in employment relationships, marginal propensities to consume (MPCs), and consumption baskets. Theoretically, we derive estimable formulae for fiscal multipliers and characterize how network structures determine their size. Empirically, we estimate that multipliers vary substantially across policies, so targeting is important. However, virtually all variation in multipliers stems from differences in policies' direct incidence onto households' MPCs. Thus, while policies' distributional effects depend on network structures, maximally expansionary fiscal policy simply targets households' MPCs.
Keywords: Fiscal Policy, Shock Propagation, Input-Output Networks, Household Heterogeneity
JEL Classification: E21, C67, E32, E62
Suggested Citation: Suggested Citation