Heterogeneous Purchases, Heterogeneous Multipliers

Do the effects of local fiscal multipliers vary based on the type of government purchases? We find that government purchases of services generate larger increases in local employment, labor income, and output than purchases of goods. This variation stems from key factors: differences in sectoral characteristics \textemdash particularly centrality and markups -- between good-producing and service-producing industries, and distinct impacts on business turnover and productivity. Our results highlight important mechanisms shaping the effectiveness of fiscal policy across spending categories.