The Household Effects of Government Spending

Giavazzi, Francesco; McMahon, Michael

doi:10.7208/chicago/9780226018584.003.0004

Cited by 24 publications

(24 citation statements)

References 3 publications

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“…The empirical literature based on Var-identified shocks suggests that tax multipliers are larger than spending multipliers (see Ramey 2013 for a survey). Multipliers are also found to be larger during recessions (Auerbach and Gorodnichenko 2012, Giavazzi and McMahon 2013, Ramey 2013, although Ramey et al (2013) cast some doubts on this evidence.…”

Section: Introductionmentioning

confidence: 98%

The output effect of fiscal consolidation plans

Alesina

Favero

Giavazzi

2015

Journal of International Economics

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The key question in estimating the effects of fiscal policy on output is how to identify shifts in fiscal policy that are "exogenous", that is are not a response to the state of output -as would be the case, for instance, of a fiscal expansion induced by a fall in output. Following the approach pioneered by Romer and Romer (2010), Devries at al (2011) have collected and described -using the records available in official documents -the multi-year fiscal consolidation plans announced (and then implemented or revised) by seventeen OECD countries over a quarter of a century . Among all stabilization plans these authors have selected those that were designed to reduce a budget deficit and to put the public debt on a sustainable path, which should guarantee their "exogeneity".Using the Devries et al (2011) data we have been able to make progress on question of anticipated versus unanticipated shifts in fiscal policy and permanent versus transitory shifts. We find that it matters crucially how the consolidation occurs. Fiscal adjustments based upon spending cuts are much less costly in terms of output losses than tax-based ones. The difference is remarkable in its size and it cannot be explained by different monetary policies during the two types of adjustments. We find instead that the heterogeneity in the effects of the two types of fiscal adjustments is mainly due to the response of private investment, rather than that to consumption growth. Interestingly, the responses of business and consumers' confidence to different types of fiscal adjustment show the same asymmetry as investment and consumption: business confidence (unlike consumer confidence) picks up immediately after expenditure-based adjustments.The strength and the statistical significance of our results depend crucially on the innovative approach that we adopt to simulate the impact of fiscal adjustments. Rather than simulating the impact of exogenous fiscal shocks, we study the response of output (and of the other variables of interest) to multi-period fiscal consolidation plans -that is sequences of tax increases and spending cuts, announced in some year and then implemented or revised in subsequent years. We allow for differences in the "style" of these plans across countries, and we show that these differences are a critical factor in order to obtain more precise estimates of the response of the economy to a consolidation plan.The output effect of fiscal consolidation plans Alberto Alesina, Carlo Favero and Francesco Giavazzi * This version: October 2014 AbstractWe show that the correct experiment to evaluate the effects of a fiscal adjustment is the simulation of a multi year fiscal plan rather than of individual fiscal shocks. Simulation of fiscal plans adopted by 16 OECD countries over a 30-year period supports the hypothesis that the effects of consolidations depend on their design. Fiscal adjustments based upon spending cuts are much less costly, in terms of output losses, than tax-based ones and have especially low output costs when they consist...

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Section: Introductionmentioning

confidence: 98%

The output effect of fiscal consolidation plans

Alesina

Favero

Giavazzi

2015

Journal of International Economics

Self Cite

250

213

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“…Since labor earnings are an important part of income for most households, this channel is particularly relevant for policies that have heterogenous effects on employment possibilities across the population. Against this background, an empirical literature, reviewed below, is showing substantial interest in the disaggregated effects of fiscal policy (see, e.g., Anderson, Inoue, and Rossi 2016, Cloyne and Surico 2017, De Giorgi and Gambetti 2012, Giavazzi and McMahon 2012, Johnson, Parker, and Souleles 2006, Misra and Surico 2014, and Nekarda and Ramey 2011. 1 In this paper, we document substantial heterogeneity in the effects of fiscal policy on the labor market.…”

Section: Introductionmentioning

confidence: 65%

“…We are not the first to study the heterogeneous effects of government spending. Giavazzi and McMahon (2012) explore the effects of a specific spending shock, increases in military spending, on hours worked and consumption of different workers but not considering occupations and instead focusing on industries as well as on demographic and socioeconomic characteristics. Nekarda and Ramey (2011) document heterogeneous effects across industries but abstract from the occupation-mix within industries.…”

Section: Introductionmentioning

confidence: 99%

Fiscal Policy and Occupational Employment Dynamics

Bredemeier¹,

Juessen²,

Winkler³

2019

J of Money Credit Banking

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Any opinions expressed in this paper are those of the author(s) and not those of IZA. Research published in this series may include views on policy, but IZA takes no institutional policy positions. The IZA research network is committed to the IZA Guiding Principles of Research Integrity. The IZA Institute of Labor Economics is an independent economic research institute that conducts research in labor economics and offers evidence-based policy advice on labor market issues. Supported by the Deutsche Post Foundation, IZA runs the world's largest network of economists, whose research aims to provide answers to the global labor market challenges of our time. Our key objective is to build bridges between academic research, policymakers and society. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author.

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“…These empirical findings can be replicated by the model economy. Other related empirical work is Owyang and Zubairy (2013) and Giavazzi and McMahon (2012). 9 Second, this study is complementary to a chain of quantitative papers incorporating heterogeneity across individual households to account for the effects of fiscal policies.…”

Section: Related Literaturementioning

confidence: 99%

The Heterogeneous Responses of Consumption between Poor and Rich to Government Spending Shocks

Ma¹

2018

J of Money Credit Banking

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Government spending shocks have substantially different effects on consumers across the income distribution: consumption increases for the poor whereas it decreases for the rich in response to a rise in government expenditure. I shed light on this issue by incorporating a progressive tax scheme and productive public expenditure into a heterogeneous agent model economy with indivisible labor. The model economy is able to successfully match aggregate and disaggregate effects of government spending shocks on consumption. When the government increases its spending and accompanies it by a rise in tax progressivity, the poor are employed and increase their consumption since after‐tax wage rates increase while the rich decrease their consumption because of a fall in after‐tax wage rates.

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The Household Effects of Government Spending

Cited by 24 publications

References 3 publications

The output effect of fiscal consolidation plans

The output effect of fiscal consolidation plans

Fiscal Policy and Occupational Employment Dynamics

The Heterogeneous Responses of Consumption between Poor and Rich to Government Spending Shocks

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