Recovery and Reinvestment Act Spending at the State Level: Keynesian Stimulus or Distributive Politics?
AbstractWe examine the US state-level pattern of American Recovery and Reinvestment Act (ARRA) spending. We relate spending to (1) Keynesian determinants of countercyclical policy, (2) congressional power and dominance, and (3) presidential electoral vote importance. We find that the ARRA is, in practice, poorly-designed countercyclical stimulus. After controlling for political variables, coefficients on Keynesian variables are often statistically insignificant. When they are statistically significant they are often the “incorrect” sign. On the other hand, statistically significant effects associated with political variables are almost always of the sign predicted by public choice theory. One striking result is that the elasticity of ARRA spending with respect to the pre-ARRA levels of federal grants and payments to state and local governments is between 0.254 and 0.361. States previously capturing large amounts of federal funds continue to do so under the ARRA stimulus.
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Bibliographic InfoPaper provided by Department of Economics, West Virginia University in its series Working Papers with number 10-17.
Length: 42 pages
Date of creation: 2010
Date of revision:
fiscal stimulus; fiscal policy; political economy; public choice; congressional dominance model; American recovery and reinvestment act;
Other versions of this item:
- Andrew Young & Russell Sobel, 2013. "Recovery and Reinvestment Act spending at the state level: Keynesian stimulus or distributive politics?," Public Choice, Springer, vol. 155(3), pages 449-468, June.
- D7 - Microeconomics - - Analysis of Collective Decision-Making
- H5 - Public Economics - - National Government Expenditures and Related Policies
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-02 (All new papers)
- NEP-CBA-2010-10-02 (Central Banking)
- NEP-PBE-2010-10-02 (Public Economics)
- NEP-POL-2010-10-02 (Positive Political Economics)
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