NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

What the Government Purchases Multiplier Actually Multiplied in the 2009 Stimulus Package

John F. Cogan, John B. Taylor

NBER Working Paper No. 16505
Issued in October 2010
NBER Program(s):   EFG   IFM   ME

Much of the recent economic debate about the impact of stimulus packages has focused on the size of the crucial government purchases multiplier. But equally crucial is the size of the government purchases multiplicand—the change in government purchases of goods and services that the multiplier actually multiplies. Using new data from the Bureau of Economic Analysis and considering developments at both the federal and the state and local level, we find that the government purchases multiplicand through the 2nd quarter of 2010 has been only 2 percent of the $862 billion American Recovery and Reinvestment Act (ARRA) of 2009. This increase in government purchases has occurred mainly at the federal level. While states and localities received substantial grants under ARRA, state and local governments have not increased their purchases of goods and services. Instead they reduced borrowing and increased transfer payments. These findings explain why, regardless of the size of a government purchases multiplier, changes in government purchases have had no material effect on the growth of GDP since the time ARRA was enacted. The implication is not that ARRA has been too small, but rather that it failed to increase government consumption expenditures and infrastructure spending as many had predicted from such a large package. A consideration of the counterfactual event that there had not been an ARRA supports the hypothesis that state and local government borrowing would have been higher and purchases would have been about the same in the absence of ARRA.

download in pdf format
   (263 K)

email paper

This paper is available as PDF (263 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16505

Published: What the Government Purchases Multiplier Actually Multiplied in the 2009 Stimulus Package, (with John F. Cogan), in Government Policies and the Delayed Economic Recovery, Lee Ohanian, John B. Taylor, Ian Wright (Eds,) Hoover Press, Stanford, 2012

Users who downloaded this paper also downloaded these:
Feyrer and Sacerdote w16759 Did the Stimulus Stimulate? Real Time Estimates of the Effects of the American Recovery and Reinvestment Act
Ilzetzki, Mendoza, and Vegh w16479 How Big (Small?) are Fiscal Multipliers?
Christiano, Eichenbaum, and Rebelo w15394 When is the government spending multiplier large?
Cogan, Cwik, Taylor, and Wieland w14782 New Keynesian versus Old Keynesian Government Spending Multipliers
Leeper w16510 Monetary Science, Fiscal Alchemy
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us