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Reconstruction Multipliers

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  • Francesco Porcelli
  • Riccardo Trezzi

Abstract

Following the 2009 L'Aquila earthquake, financing of reconstruction by the Italian central government resulted in a sharp and unanticipated discontinuity in grants across municipalities that were ex-ante very similar. Using the emergency financing law as an instrument, we identify the causal effect of municipal government spending on local activity, controlling for the negative supply shock from the earthquake. In our estimates, this \"reconstruction multiplier\" is around unity, and we show that the grants provided public insurance. Economic activity contracted in municipalities that did not receive the grants, while it expanded--or at least did not contract--in municipalities that did receive them. Our results suggest several policy implications with respect to the allocation mechanism of such grants.

Suggested Citation

  • Francesco Porcelli & Riccardo Trezzi, 2014. "Reconstruction Multipliers," Finance and Economics Discussion Series 2014-79, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2014-79
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    References listed on IDEAS

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    1. Gabriel Chodorow-Reich & Laura Feiveson & Zachary Liscow & William Gui Woolston, 2012. "Does State Fiscal Relief during Recessions Increase Employment? Evidence from the American Recovery and Reinvestment Act," American Economic Journal: Economic Policy, American Economic Association, vol. 4(3), pages 118-145, August.
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    Cited by:

    1. Gabriel Chodorow-Reich, 2019. "Geographic Cross-Sectional Fiscal Spending Multipliers: What Have We Learned?," American Economic Journal: Economic Policy, American Economic Association, vol. 11(2), pages 1-34, May.
    2. Mario Alloza & Carlos Sanz, 2021. "Jobs Multipliers: Evidence from a Large Fiscal Stimulus in Spain," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(3), pages 751-779, July.
    3. Hansj?rg Bl?chliger & Bal?zs ?gert, 2017. "Intergovernmental Transfers: Are they pro- or counter-cyclical?," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2017(3), pages 5-20.
    4. Buchheim, Lukas & Watzinger, Martin, 2017. "The Employment Effects of Countercyclical Infrastructure Investments," Discussion Papers in Economics 34877, University of Munich, Department of Economics.
    5. Raphael Corbi & Elias Papaioannou & Paolo Surico, 2019. "Regional Transfer Multipliers," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(5), pages 1901-1934.
    6. Fuchs-Schündeln, N. & Hassan, T.A., 2016. "Natural Experiments in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 923-1012, Elsevier.
    7. Gabriel Chodorow-Reich, 2017. "Geographic Cross-Sectional Fiscal Multipliers: What Have We Learned?," Working Paper 458091, Harvard University OpenScholar.
    8. Andrew C. Chang, 2018. "Nothing is Certain Except Death and Taxes : The Lack of Policy Uncertainty from Expiring \"Temporary\" Taxes," Finance and Economics Discussion Series 2018-041, Board of Governors of the Federal Reserve System (U.S.).

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    More about this item

    Keywords

    Natural disasters; Fiscal multipliers; Mercalli scale;
    All these keywords.

    JEL classification:

    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

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