The dynamic effects of public expenditure shocks in the United States

This paper estimates the dynamic aggregate effects of exogenous shocks to two key components of public expenditure in the United States, government income transfers and government spending. The identification strategy positions the structural shocks to public expenditure in an SVAR framework with exogenous measures of public expenditure changes. Transfers shocks are based on a new narrative variable of legislated increases in U.S. social security benefits. I demonstrate that shocks to different types of public expenditure do not have the same macroeconomic impact. The estimated government spending multiplier is between 0 and 1, while increases in transfers generate a multiplier effect above 1.