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How Much Consumption Responds to Government Stimulus
Report

How Much Consumption Responds to Government Stimulus

Marios Karabarbounis, Marianna Kudlyak and M. Saif Mehkari
FRBSF, 2018
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Editorial Rating

8

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Recommendation

Policy makers can wield multiple types of government stimulus: tax cuts, transfer payments and direct spending into the economy. However, some programs drive greater economic activity than others. Economists Marios Karabarbounis, Marianna Kudlyak and M. Saif Mehkari assess the specific efficacy of direct spending via federal contracts under the 2009 American Recovery and Reinvestment Act. getAbstract recommends this eye-opening report to economists, policy experts and anyone interested in the effects of government spending on the economy.

Take-Aways

  • The US federal government’s American Recovery and Reinvestment Act (ARRA) deployed $787 billion in fiscal stimulus into the US economy from 2009 to 2012.
  • Officials earmarked $228 billion for projects in “education, transportation, infrastructure and energy.” Roughly 95% of US counties obtained one or more government contracts under the program. 
  • Each $1 of government stimulus per household boosted local consumer expenditures by $0.18, compared to those counties that received no contracts.

About the Authors

Marios Karabarbounis is an economist at the Richmond Federal Reserve. Marianna Kudlyak is a research adviser at the San Francisco Fed. M. Saif Mehkari is an associate professor of economics at the University of Richmond.

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