NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Valentina Kachanovskaya

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Working Papers

November 2010In Search of the Multiplier for Federal Spending in the States During the Great Depression
with Price V. Fishback, Valentina Kachanovskaya: w16561
If there was any time to expect a large peace-time multiplier effect from federal spending in the states, it would have been during the period from 1930 through 1940. Interest rates were near the zero bound, and unemployment rates never fell below 10 percent and there was ample idle capacity. We develop an annual panel data set for the 48 states from 1930 through 1940 with evidence on federal government grants, loans, and tax collections and a variety of measures of economic activity. Using panel data methods we estimate a multiplier, defined as the change in per capita state economic activity in response to an additional dollar per capita of federal funds. The state per capita personal income multiplier with respect to per capita federal grants was around 1.1. Some point estimates f...

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