Big G

92 Pages Posted: 23 Jun 2020

See all articles by Lydia Cox

Lydia Cox

Harvard University, Department of Economics

Gernot J. Müller

University of Tuebingen - Department of Economics

Ernesto Pastén

Central Bank of Chile

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: May 27, 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 US 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, procurement contracts are short-lived. Fourth, idiosyncratic variation dominates the fluctuation 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 exists, 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 Pastén, Ernesto and Schoenle, Raphael and Weber, Michael, Big G (May 27, 2020). FRB of Cleveland Working Paper No. 20-15, Available at SSRN: https://ssrn.com/abstract=3628805 or http://dx.doi.org/10.2139/ssrn.3628805

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 Pastén

Central Bank of Chile

Publicaciones
Huerfanos 1185
Santiago
Chile

Raphael Schoenle (Contact Author)

Brandeis University ( email )

Waltham, MA 02454
United States

Michael Weber

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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