Essays in Fiscal Policy
Abstract
Although government spending is one of the main components of Gross Domestic Product (GDP), the impact of various types of government spending on the economy is not yet well understood. Policymakers may want to know which part of government spending can effectively stimulate the economy. The government spending multiplier is a commonly used tool in this regard, and it estimates the changes in GDP for every additional dollar spent by the government. When the multiplier exceeds one, it is generally considered that additional government spending is effective. In Chapter I, I study whether various types of government spending generate similar multiplier effects. I use a mix of econometric and general equilibrium models to answer this question. Direct government spending can be separated into different categories, such as consumption vs. investment or federal vs. state. Consumption expenditures mostly include the salaries of government employees, whereas investment accounts for expenditures in structures, equipment, and intellectual property. Based on the US data from 1966 to 2020, I find that the consumption multiplier is close to zero, and the investment multiplier exceeds one in the short run. I also find evidence that the state and local spending multiplier is larger than the federal spending multiplier. In Chapter II, I use a heterogeneous agent model to analyze how missed payments in a large-scale federal stimulus program could affect the outcome of the program. When the US federal government implements a stimulus program, most eligible individuals receive their stimulus checks. However, some individuals miss their payments. Studies reveal that such occurrences are non-random and mostly concentrated at the bottom of the asset distribution. If the unused funds become a deadweight loss, missing payments can lower aggregate consumption, savings, and output in the short run. I show that missing payments do not lower output if the unused funds are quickly returned to taxpayers. Rather, it is possible that output will be higher in the medium run. This is because average taxpayers are typically wealthier than those who miss payments and have a higher marginal propensity to save (MPS). As a result, they save a higher share of those unused funds, which could eventually translate into higher capital stock and output.
Subject Area
Economics|Public policy|Finance|Banking
Recommended Citation
Al Mamun, Mustofa Mahmud, "Essays in Fiscal Policy" (2024). ETD Collection for Fordham University. AAI31293044.
https://research.library.fordham.edu/dissertations/AAI31293044
