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      - page 43 / 47





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complete, the eventual effect will be approximately a $4 increase in total spending. As a general rule, therefore, the multiplier effect will be larger the lower the saving and tax rates. These tend to occur in lower income households who tend to save less and are in lower tax brackets. However, lower income households also may purchase more imported goods (lower priced items), so the greater spending by households in the first round may be offset by more leakage because of purchases of imports.

If the funds are provided to a business in the form of a loan or subsidy, the business may spend all of it, but the business may purchase some of its products from abroad or invest the funds in overseas operations. Such spending abroad also constitutes a “leakage” from the domestic economy (in the first round). A question for policy, therefore, is which industries in the United States tend to have the least leakage from imports? In industries with Buy American provisions (such as certain rapid transportation, domestic ship transport, and national defense), leakage is kept small by law. Much government procurement falls under Buy American constraints, although signatory countries to the WTO Government Procurement Agreement must implement requirements to buy local according provisions of the agreement. 92 93

Figure 7 shows exports and imports by U.S. multinational companies in selected sectors in 2005. The sectors are ranked according to those with the largest net exports at the top and those with the largest net imports at the bottom.94 There were many other sectors with data collected by the U.S. Bureau of Economic Analysis in which multinational companies operated, but those sectors had fewer than three companies reporting, and their data was suppressed to avoid disclosure of amounts for individual companies. The rank order in the figure roughly parallels the rank order for size of the fiscal multipliers for the sectors indicated. Food, computers and electronics, machinery, chemicals, metals, and mining tend to have the higher first round effects (less import leakage and more exports), while motor vehicles, retail and wholesale trade, and petroleum products tend to have lower first-round effects (more leakage abroad).

92 CRS Report 97-765, The Buy American Act: Requiring Government Procurements to Come from Domestic Sources, by John R. Luckey.

93 World Trade Organization, The Plurilateral Agreement on Government Procurement (GPA), Trade Topics, accessed January 15, 2009 [http://www.wto.org/english/tratop_e/gproc_e/gp_gpa_e.htm].

94 U.S. Bureau of Economic Analysis, U.S. Direct Investment Abroad , U.S. Parent Companies , accessed December 30, 2008.

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