In Search of the Multiplier for Federal Spending in the States During the Great Depression

Price V. Fishback, Valentina Kachanovskaya

NBER Working Paper No. 16561
Issued in November 2010, Revised in December 2011
NBER Program(s):Development of the American Economy

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 for multipliers for nontransfer grants and nonfarm grants were higher but not statistically significantly different from one. There is some evidence that AAA farm grants had negative or no effect on personal income. Federal grants had stronger effects on consumption than on personal income, but they had no positive effect on various measures of private employment.

download in pdf format
   (310 K)

email paper

A non-technical summary of this paper is available in the May 2011 NBER Digest.  You can sign up to receive the NBER Digest by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16561

Users who downloaded this paper also downloaded* these:
Romer and Romer w13264 The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks
Ilzetzki, Mendoza, and Vegh w16479 How Big (Small?) are Fiscal Multipliers?
Fishback w16477 U.S. Monetary and Fiscal Policy in the 1930s
Nakamura and Steinsson w17391 Fiscal Stimulus in a Monetary Union: Evidence from U.S. Regions
Gordon and Krenn w16380 The End of the Great Depression 1939-41: Policy Contributions and Fiscal Multipliers
NBER Videos

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

Contact Us