Big G

96 Pages Posted: 10 Apr 2020 Last revised: 4 Jan 2021

See all articles by Lydia Cox

Lydia Cox

Harvard University, Department of Economics

Gernot J. Müller

University of Tuebingen - Department of Economics

Ernesto Pasten

University of Toulouse 1 - Toulouse School of Economics (TSE)

Raphael Schoenle

Brandeis University

Michael Weber

University of Chicago - Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 5 versions of this paper

Date Written: April 30, 2020

Abstract

Big G" typically refers to aggregate government spending on a homogeneous good. In this paper, we open up this construct by analyzing the entire universe of procurement contracts of the U.S. federal government and establish five facts. First, government spending is granular; that is, it is concentrated in relatively few firms and sectors. Second, relative to private expenditures its composition is biased. Third, contracts and firms are short-lived in the dataset and sectoral spending is only moderately persistent. Fourth, idiosyncratic variation dominates fluctuations in spending. Last, government spending is concentrated in sectors with relatively sticky prices. Accounting for these facts within a stylized New Keynesian model offers new insights into the fiscal transmission mechanism: fiscal shocks hardly impact
Inflation, little crowding out of private expenditure occurs, markups can be both pro-cyclical or counter-cyclical depending on the source of the shock, and the multiplier tends to be larger compared to a one-sector benchmark, aligning the model with the empirical evidence.

Keywords: Government spending, federal procurement, granularity, sectoral heterogeneity, fiscal policy transmission, monetary policy

JEL Classification: E62, E32

Suggested Citation

Cox, Lydia and Müller, Gernot J. and Pasten, Ernesto and Schoenle, Raphael and Weber, Michael, Big G (April 30, 2020). Chicago Booth Research Paper No. 20-04, Fama-Miller Working Paper, University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-36, Available at SSRN: https://ssrn.com/abstract=3571449 or http://dx.doi.org/10.2139/ssrn.3571449

Lydia Cox

Harvard University, Department of Economics ( email )

Cambridge, MA 02138

Gernot J. Müller

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

Ernesto Pasten

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Raphael Schoenle

Brandeis University ( email )

Waltham, MA 02454
United States

Michael Weber (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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