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We study the effects of government spending shocks in an economy with multiple interconnected production sectors that differ in their price rigidity, factor intensities, use of intermediate inputs, and contribution to final demand. The cumulative aggregate output multiplier associated with an aggregate government spending shock is 84% larger than that obtained in the average one-sector economy. This amplification is mainly driven by sectoral heterogeneity in price rigidity and the presence of input-output linkages. We also document substantial heterogeneity in the aggregate effects of sector-specific government spending shocks, and identify the key factors that account for it. Government spending shocks tend to have larger effects on aggregate output when they originate in sectors that have relatively rigid prices and high labor shares in value added, and are located downstream in the production network.
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