TY - JOUR

T1 - Nonlinear effects of government spending shocks in the USA

T2 - Evidence from state-level data

AU - Mumtaz, Haroon

AU - Sunder-Plassmann, Laura

PY - 2021

Y1 - 2021

N2 - This paper uses state-level data to estimate the effect of government spending shocks during expansions and recessions. By employing a mixed-frequency framework, we are able to include a long span of annual state-level government spending data in our nonlinear quarterly panel VAR model. We find evidence that for the average state the fiscal multiplier is larger during recessions. However, there is substantial heterogeneity across the cross-section. The degree of nonlinearity in the effect of spending shocks is larger in states that are subject to a higher degree of financial frictions. In contrast, states with a prevalence of manufacturing, mining and agricultural industries tend to have multipliers that are more similar across business cycle phases.

AB - This paper uses state-level data to estimate the effect of government spending shocks during expansions and recessions. By employing a mixed-frequency framework, we are able to include a long span of annual state-level government spending data in our nonlinear quarterly panel VAR model. We find evidence that for the average state the fiscal multiplier is larger during recessions. However, there is substantial heterogeneity across the cross-section. The degree of nonlinearity in the effect of spending shocks is larger in states that are subject to a higher degree of financial frictions. In contrast, states with a prevalence of manufacturing, mining and agricultural industries tend to have multipliers that are more similar across business cycle phases.

U2 - 10.1002/jae.2800

DO - 10.1002/jae.2800

M3 - Journal article

AN - SCOPUS:85097957920

VL - 36

SP - 86

EP - 97

JO - Journal of Applied Econometrics

JF - Journal of Applied Econometrics

SN - 0883-7252

IS - 1

ER -