NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Household Effects of Government Spending

Francesco Giavazzi, Michael McMahon

Chapter in NBER book Fiscal Policy after the Financial Crisis (2013), Alberto Alesina and Francesco Giavazzi, editors (p. 103 - 141)
Conference held December 12-13, 2011
Published in June 2013 by University of Chicago Press
© 2013 by the National Bureau of Economic Research

This chapter examines how households respond to changes in a particular type of government spending: military contracts awarded by the Pentagon. Results show significant differences in the effects of government spending, depending on the state-specific unemployment rate. In states with relatively low unemployment, government spending could have insignificant or even negative effects on private consumption. In contrast, private consumption increases in high-unemployment states, suggesting that in such states, the multiplier is likely to be positive. Fiscal policy can have important distributional effects, since there is significant heterogeneity in households' responses to shifts in government spending.

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This paper was revised on February 14, 2012

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This chapter first appeared as NBER working paper w17837, The Households Effects of Government Consumption, Francesco Giavazzi, Michael McMahon
Commentary on this chapter: Comment, Lawrence J. Christiano
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