The government spending multiplier: Evidence from county level data

• Panel data using 3141 U.S. counties is used to estimate individual and time fixed effect regressions.
• The federal government spending multiplier is approximately 1.5.
• The state and local multipliers are smaller and less than 1.
• The size of the government spending multipliers appear to be insensitive to the Great Recession.

The passage of the American Recovery and Reinvestment Act (ARRA) of 2009 has brought fiscal policy to the forefront once again. The size of the “multiplier” of government spending becomes of critical importance for determining the effect of stimulus programs. Yet there is considerable controversy about this issue. This study adds to the discussion on the size of the multiplier by using earnings data by county. This allows the creation of a panel data that includes 3141 counties for the time period 2001–2012. We estimate the federal government spending multiplier to be approximate 1.5. Our estimate for state and local spending multipliers are considerably smaller. Our results have implication for policy in that federal programs will be more effective for stabilization county economies than state or local spending.