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The American Recovery and Reinvestment Act: Solely a government jobs program?

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  • Conley, Timothy G.
  • Dupor, Bill

Abstract

This paper estimates the private and government sector employment effects of American Recovery and Reinvestment Act (ARRA) spending via an instrumental variables strategy. We argue that this aid was effectively fungible and states used it to offset declines in revenue. This enables us to use exogenous variation in states’ budget positions to identify the Act's employment effects. We also exploit exogenous variation across states in ARRA highway funding. According to our benchmark estimates, average state and local government employment, during the 24 months following the program's inception, was between 156,000 and 563,000 persons greater as a result of ARRA spending (90% confidence interval). The corresponding estimate for the private sector ranges from a loss of 182,000 to a gain of 1.1 million jobs. Our point estimate for the implied cost of creating a job lasting one year is $202,000, which is substantially larger than the corresponding estimate from the President's Council of Economic Advisors.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 60 (2013)
Issue (Month): 5 ()
Pages: 535-549

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Handle: RePEc:eee:moneco:v:60:y:2013:i:5:p:535-549

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Web page: http://www.elsevier.com/locate/inca/505566

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References

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  1. Daniel J. Wilson, 2010. "Fiscal spending multipliers: evidence from the 2009 American Recovery and Reinvestment Act," Working Paper Series 2010-17, Federal Reserve Bank of San Francisco.
  2. Matthew D. Shapiro & Joel Slemrod, 2009. "Did the 2008 Tax Rebates Stimulate Spending?," American Economic Review, American Economic Association, vol. 99(2), pages 374-79, May.
  3. Bradford, David F & Oates, Wallace E, 1971. "An Analysis of Revenue Sharing in a New Approach to Collective Fiscal Decisions," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 85(3), pages 416-39, August.
  4. Clemens, Jeffrey & Miran, Stephen, 2010. "The effects of state budget cuts on employment and income," MPRA Paper 38715, University Library of Munich, Germany.
  5. Robert P. Inman, 2010. "States in Fiscal Distress," NBER Working Papers 16086, National Bureau of Economic Research, Inc.
  6. Brian Knight, 2002. "Endogenous Federal Grants and Crowd-out of State Government Spending: Theory and Evidence from the Federal Highway Aid Program," American Economic Review, American Economic Association, vol. 92(1), pages 71-92, March.
  7. James R. Hines & Richard H. Thaler, 1995. "The Flypaper Effect," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 217-226, Fall.
  8. Phelan, Christopher & Trejos, Alberto, 2000. "The aggregate effects of sectoral reallocations," Journal of Monetary Economics, Elsevier, Elsevier, vol. 45(2), pages 249-268, April.
  9. Robert P. Inman, 2010. "States in fiscal distress," Regional Economic Development, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Oct, pages 65-80.
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Cited by:
  1. William Dupor, 2013. "Creating jobs via the 2009 recovery act: state medicaid grants compared to broadly-directed spending," Working Papers 2013-035, Federal Reserve Bank of St. Louis.
  2. Dupor, William & Li, Rong, 2013. "The Expected Inflation Channel of Government Spending in the Postwar U.S," Working Papers 2013-026, Federal Reserve Bank of St. Louis, revised 12 May 2014.
  3. Gerald Carlino & Robert P. Inman, 2013. "Macro fiscal policy in economic unions: states as agents," Working Papers 13-40, Federal Reserve Bank of Philadelphia.

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