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Fiscal spending multipliers: evidence from the 2009 American Recovery and Reinvestment Act

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  • Daniel J. Wilson

Abstract

This paper estimates the “jobs multiplier” of fiscal spending using the state-level allocations of federal stimulus funds from the 2009 American Recovery and Reinvestment Act (ARRA). Specifically, I estimate the relationship between state-level federal ARRA spending and state employment outcomes from the time the Act was passed (February 2009) through the latest month of data (currently May 2010). Because actual state allocations of stimulus spending may be endogenous with respect to state economic outcomes, I instrument for stimulus spending using the state allocations that were anticipated immediately after the ARRA was passed, according to the Wall Street Journal and the Center for American Progress. To control for the counterfactual – what would have happened without the stimulus – I include several variables likely to be strong predictors of state employment growth. The results point to substantial heterogeneity in the impact of ARRA spending over time, across sectors, and across types of spending. The estimated jobs multiplier for total nonfarm employment is large and statistically significant for ARRA spending through March 2010, but falls considerably and becomes insignificant in April and May. The implied number of jobs created or saved by the spending is about 2.0 million as of March, but drops to 0.8 million as of May. Across sectors, the estimated impact of ARRA spending on construction employment is especially large, implying a 18.4% increase in employment (as of May 2010) relative to what it would have been without the ARRA. Lastly, I find that spending on infrastructure and other general purposes has a large positive impact, while spending on safety-net programs such as unemployment insurance and Medicaid reduces employment.

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Bibliographic Info

Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2010-17.

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Date of creation: 2010
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Handle: RePEc:fip:fedfwp:2010-17

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Keywords: American Recovery and Reinvestment Act of 2009 ; Fiscal policy - United States ; Employment;

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References

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  1. Cogan, John F. & Cwik, Tobias & Taylor, John B. & Wieland, Volker, 2009. "New Keynesian versus old Keynesian government spending multipliers," CEPR Discussion Papers 7236, C.E.P.R. Discussion Papers.
  2. Tommaso Monacelli & Roberto Perotti & Antonella Trigari, 2010. "Unemployment Fiscal Multipliers," NBER Working Papers 15931, National Bureau of Economic Research, Inc.
  3. Woodford, Michael, 2010. "Simple Analytics of the Government Expenditure Multiplier," CEPR Discussion Papers 7704, C.E.P.R. Discussion Papers.
  4. Giancarlo Corsetti & André Meier & Gernot J. Müller, 2012. "Fiscal Stimulus with Spending Reversals," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 878-895, November.
  5. Gernot Müller & Giancarlo Corsetti & André Meier, 2009. "Fiscal Stimulus with Spending Reversals," IMF Working Papers 09/106, International Monetary Fund.
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Cited by:
  1. Valerie A. Ramey, 2011. "Can Government Purchases Stimulate the Economy?," Journal of Economic Literature, American Economic Association, vol. 49(3), pages 673-85, September.
  2. Atif Mian & Amir Sufi, 2012. "The Effects of Fiscal Stimulus: Evidence from the 2009 Cash for Clunkers Program," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1107-1142.
  3. Sylvain Leduc & Daniel J. Wilson, 2012. "Should transportation spending be included in a stimulus program? a review of the literature," Working Paper Series 2012-15, Federal Reserve Bank of San Francisco.
  4. Emi Nakamura & J?n Steinsson, 2014. "Fiscal Stimulus in a Monetary Union: Evidence from US Regions," American Economic Review, American Economic Association, vol. 104(3), pages 753-92, March.
  5. Sylvain Leduc & Daniel Wilson, 2013. "Roads to Prosperity or Bridges to Nowhere? Theory and Evidence on the Impact of Public Infrastructure Investment," NBER Macroeconomics Annual, University of Chicago Press, vol. 27(1), pages 89 - 142.
  6. Ricco, Giovanni & Ellahie, Atif, 2012. "Government Spending Reloaded: Fundamentalness and Heterogeneity in Fiscal SVARs," MPRA Paper 42105, University Library of Munich, Germany.
  7. Alan J. Auerbach & Yuriy Gorodnichenko, 2011. "Fiscal Multipliers in Recession and Expansion," NBER Working Papers 17447, National Bureau of Economic Research, Inc.
  8. F. Gerard Adams & Byron Gangnes, 2010. "The Employment Effects of Fiscal Policy: How Costly Are ARRA Jobs?," Working Papers 201026, University of Hawaii at Manoa, Department of Economics.
  9. James Feyrer & Bruce Sacerdote, 2011. "Did the Stimulus Stimulate? Real Time Estimates of the Effects of the American Recovery and Reinvestment Act," NBER Working Papers 16759, National Bureau of Economic Research, Inc.
  10. Valerie A. Ramey, 2012. "Government Spending and Private Activity," NBER Working Papers 17787, National Bureau of Economic Research, Inc.
  11. Conley, Timothy G. & Dupor, Bill, 2013. "The American Recovery and Reinvestment Act: Solely a government jobs program?," Journal of Monetary Economics, Elsevier, vol. 60(5), pages 535-549.
  12. Daniel J. Wilson, 2012. "Government spending: an economic boost?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue feb6.

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