Bureau of Business Research


Date of this Version



Business in Nebraska vol. 52 no. 619


Copyright 1997 by Bureau of Business Research, University of Nebraska.


Reductions in federal government spending or at least a slowdown in the growth of federal spending-is a popular theme among politicians and the public. Over the long term, reduced federal spending may stimulate the national economy through lower interest rates and other factors. However, the short-term consequences for at least some local and regional economies may be quite different. This is due to the fact that federal spending is often an important contributor to local job creation.

In some cases the contribution of federal spending to the local economy is apparent, e.g., in the case of a military base, a national park, or a Veterans Administration hospital. Less obvious-but of no less importance-is the role of federal transfer payments. Transfer payments as defined by the Bureau of Economic Analysis (BEA), U.S. Department of Commerce, are payments to persons, generally in monetary form, for which they do not render current services. When recipients of these payments spend this income locally, jobs are created and economic activity is enhanced.