The Network Effects of Fiscal Adjustments 

64 Pages Posted: 28 Nov 2021

See all articles by Edoardo Briganti

Edoardo Briganti

University of California, San Diego

Carlo A. Favero

Bocconi University - Department of Finance; Centre for Economic Policy Research (CEPR)

Madina Karamysheva

National Research University Higher School of Economics

Date Written: June 21, 2021

Abstract

We study the effects of fiscal consolidations in the United States and their propagation in the production network. We use a narrative approach to identify fiscal adjustments which are exogenous to output fluctuations. Then we apply spatial econometric techniques to separate the total effect of fiscal adjustments into a direct and network component. We find that fiscal adjustments based on increased taxation are more recessionary than those based on spending cuts. Moreover, one-quarter of the difference in their total output effect is explained by the stronger network propagation of taxes relative to government spending.

Keywords: industrial networks, fiscal adjustment plans, output growth, applied spatial econometrics

JEL Classification: E60, E62

Suggested Citation

Briganti, Edoardo and Favero, Carlo A. and Karamysheva, Madina, The Network Effects of Fiscal Adjustments  (June 21, 2021). Available at SSRN: https://ssrn.com/abstract=3971565 or http://dx.doi.org/10.2139/ssrn.3971565

Edoardo Briganti

University of California, San Diego ( email )

9500 Gilman Drive
Mail Code 0502
La Jolla, CA 92093-0112
United States

Carlo A. Favero

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

HOME PAGE: http://www.igier.unibocconi.it\favero

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Madina Karamysheva (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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