Reconstruction Multipliers

49 Pages Posted: 15 Nov 2014

See all articles by Riccardo Trezzi

Riccardo Trezzi

Board of Governors of the Federal Reserve System

Francesco Porcelli

University of Warwick

Date Written: October 1, 2014

Abstract

A law issued to allocate reconstruction grants following the 2009 "Aquilano" earthquake has resulted in a large and unanticipated discontinuity across municipalities with comparable damages. Using diff-in-diff analysis we estimate the "local spending" and the "local tax" multipliers -- according to the composition of the stimulus -- controlling for the negative supply shock generated by the event. The stimulus prevented a fall in economic activity and the multiplicative effects of tax cuts are estimated much higher than those of spending. Our results underline the importance of countercyclical fiscal interventions and suggest the most effective composition of such a stimulus.

Keywords: Natural disasters, fiscal multipliers, Mercalli scale

JEL Classification: C36, E62, H70

Suggested Citation

Trezzi, Riccardo and Porcelli, Francesco, Reconstruction Multipliers (October 1, 2014). FEDS Working Paper No. 2014-79, Available at SSRN: https://ssrn.com/abstract=2511233 or http://dx.doi.org/10.2139/ssrn.2511233

Riccardo Trezzi (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Francesco Porcelli

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

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