UC San Diego

Understanding the effects and transmission mechanism of fiscal policy is crucial for designing efficient policies and enhancing efficacy assessments. This dissertation leverages recent trends in accurate data measurement and network data usage to enhance our understanding of fiscal policy's transmission mechanisms.

Chapter 1 presents evidence that early impacts of defense news shocks on GDP stem from increased business inventories as contractors prepare for new defense contracts. These do not impact government spending until payment-on-delivery, occurring 3 quarters later. Data on defense procurement obligations reveal that contract awards Granger-cause shocks to government spending identified via Cholesky decomposition, highlighting that Cholesky shocks miss early inventory changes, resulting in underestimated multipliers.

Chapter 2 introduces novel data on defense contracts to study government purchase effects in the US, developing new facts about their transmission mechanism. The data includes a new quarterly series of US military prime contracts starting from 1947. These contracts are shown to be exogenous to output fluctuations and provide robust measures for timing shocks, eliminating the need for narrative analysis. Findings suggest that positive shocks to defense contracts enhance output, consumption, labor earnings, and productivity, supported by "learning-by-doing" effects in military production.

Chapter 3 investigates fiscal consolidations' effects in the United States and their network propagation. Using a narrative approach, we identify exogenous fiscal adjustments and employ a spatial autoregression (SAR) model to differentiate direct and network effects. Tax-based consolidations exhibit a more pronounced recessionary impact than expenditure-based ones, with about 27% of tax-based effects attributable to network spillovers versus 11% for expenditure-based adjustments. This difference in network effects highlights the stronger propagation of tax increases compared to spending cuts.