Geographic Cross-Sectional Fiscal Spending Multipliers: What Have We Learned?

54 Pages Posted: 17 Jul 2017

See all articles by Gabriel Chodorow-Reich

Gabriel Chodorow-Reich

Harvard University Department of Economics

Date Written: July 2017

Abstract

A geographic cross-sectional fiscal spending multiplier measures the effect of an increase in spending in one region in a monetary union. Empirical studies of such multipliers have proliferated in recent years. In this paper, I review this research and what the evidence implies for national multipliers. Based on an updated analysis of the American Recovery and Reinvestment Act and a survey of empirical studies, my preferred point estimate for a cross-sectional output multiplier is 1.8. Economic theory of how to map these multipliers into a national multiplier has also advanced. Drawing on the theoretical literature, the paper discusses conditions under which the cross-sectional multiplier provides a rough lower bound for a particular national multiplier, the closed economy zero lower bound multiplier. Putting these elements together, the cross-sectional evidence suggests a national zero lower bound multiplier of about 1.7 or above, at the upper end of most studies based on time series evidence. The paper concludes by offering suggestions for future research on cross-sectional multipliers.

Suggested Citation

Chodorow-Reich, Gabriel, Geographic Cross-Sectional Fiscal Spending Multipliers: What Have We Learned? (July 2017). NBER Working Paper No. w23577. Available at SSRN: https://ssrn.com/abstract=3003675

Gabriel Chodorow-Reich (Contact Author)

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