Heterogeneous Spending, Heterogeneous Multipliers
030923-WP-Heterogeneous Spending, Heterogeneous Multipliers-Umberto Juarros and Valderrama
Umberto Muratori, European University Institute
Pedro Juarros, International Monetary Fund
Daniel Valderrama, World Bank
Do local fiscal multipliers depend on what the government purchases? We find that government purchases of services have larger effects on employment than spending on goods. Industries producing services are more labor-intensive than industries producing goods. This heterogeneity in labor intensity is an important mechanism behind these results. Spending directed toward labor-intensive industries generates stronger increases in income and consumption relative to spending toward non-labor-intensive industries.