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The Effect of the Recovery Act on Consumer Spending

Author

Listed:
  • Marianna Kudlyak

    (Federal Reserve Bank of San Francisco)

  • M. Saif Mehkari

    (University of Richmond)

  • Bill Dupor

    (Federal Reserve Bank of St. Louis)

  • Marios Karabarbounis

    (Federal Reserve Bank of Richmond)

Abstract

We analyze the effect of the spending component of the Recovery Act (2009-2012) on consumer spending, namely retail and auto purchases. We find a that a $1 increase in county-level government spending, increased county-level retail spending by $0.20, and auto spending by $0.05. We translate these regional estimates into aggregate effects using a novel quantitative model. We explicitly model several spillover channels through which government spending may spread across regions, such as trade in intermediate goods, a federal tax union, and a currency union. However, we also allow for heterogeneity and incomplete markets within each region. We simulate regional government spending shocks and analyze their effect on local consumer spending.

Suggested Citation

  • Marianna Kudlyak & M. Saif Mehkari & Bill Dupor & Marios Karabarbounis, 2017. "The Effect of the Recovery Act on Consumer Spending," 2017 Meeting Papers 707, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:707
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    References listed on IDEAS

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    3. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2011. "When Is the Government Spending Multiplier Large?," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 78-121.
    4. Conley, Timothy G. & Dupor, Bill, 2013. "The American Recovery and Reinvestment Act: Solely a government jobs program?," Journal of Monetary Economics, Elsevier, vol. 60(5), pages 535-549.
    5. Greg Kaplan & Giovanni L. Violante, 2014. "A Model of the Consumption Response to Fiscal Stimulus Payments," Econometrica, Econometric Society, vol. 82(4), pages 1199-1239, July.
    6. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1329-1368.
    7. Marcus Hagedorn & Fatih Karahan & Iourii Manovskii & Kurt Mitman, 2013. "Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects," NBER Working Papers 19499, National Bureau of Economic Research, Inc.
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