Ernesto Pastén, Banco Central de Chile

Sala de Postgrado

“Big G”

Coautoreado con Lydia Cox, Gernot J. Muller, Raphael Schoenle y Michael Weberk

Abstract: Generally, we use “Big G” when we refer—somewhat opaquely—to aggregate government spending. In this paper, we take a closer look and analyze data for the entire universe of procurements by the US government. We establish five facts. First, government spending is granular, that is, concentrated on relatively few firms and sectors. Second, relative to private expenditures its composition is biased. Third, procurement contracts are short-lived and, fourth, the fluctuation of spending is dominated by idiosyncratic variation. Last, government spending is concentrated in those sectors where prices are relatively sticky. Accounting for these facts within a stylized New Keynesian model sheds new light on the fiscal transmission mechanism. In particular, we show that sectoral heterogeneity aligns the model predictions with the evidence: fiscal shocks hardly impact inflation, there is little crowding out of private expenditure, and the multiplier tends to be larger compared to a one-sector benchmark.