Estimating Local Fiscal Multipliers

101 Pages Posted: 18 Jul 2016 Last revised: 11 Apr 2021

See all articles by Juan Carlos Suárez Serrato

Juan Carlos Suárez Serrato

Duke University - Department of Economics; National Bureau of Economic Research (NBER)

Philippe Wingender

International Monetary Fund (IMF) - Fiscal Affairs Department

Date Written: July 2016

Abstract

We propose a new source of cross-sectional variation that may identify causal impacts of government spending on the economy. We use the fact that a large number of federal spending programs depend on local population levels. Every ten years, the Census provides a count of local populations. Since a different method is used to estimate non-Census year populations, this change in methodology leads to variation in the allocation of billions of dollars in federal spending. Our baseline results follow a treatment-effects framework where we estimate the effect of a Census Shock on federal spending, income, and employment growth by re-weighting the data based on an estimated propensity score that depends on lagged economic outcomes and observed economic shocks. Our estimates imply a local income multiplier of government spending between 1.7 and 2, and a cost per job of $30,000 per year. A complementary IV estimation strategy yields similar estimates. We also explore the potential for spillover effects across neighboring counties but we do not find evidence of sizable spillovers. Finally, we test for heterogeneous effects of government spending and find that federal spending has larger impacts in low-growth areas.

Suggested Citation

Suárez Serrato, Juan Carlos and Wingender, Philippe, Estimating Local Fiscal Multipliers (July 2016). NBER Working Paper No. w22425, Available at SSRN: https://ssrn.com/abstract=2810935

Juan Carlos Suárez Serrato (Contact Author)

Duke University - Department of Economics ( email )

Durham, NC 27708-0204
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Philippe Wingender

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States
202-623-9831 (Phone)
202-623-4199 (Fax)

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