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Recovery and Reinvestment Act Spending at the State Level: Keynesian Stimulus or Distributive Politics?

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  • Russell S. Sobel

    (Department of Economics, West Virginia University)

  • Andrew Young

    (Department of Economics, West Virginia University)

Abstract

We 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 Info

Paper provided by Department of Economics, West Virginia University in its series Working Papers with number 10-17.

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Length: 42 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:wvu:wpaper:10-17

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Keywords: fiscal stimulus; fiscal policy; political economy; public choice; congressional dominance model; American recovery and reinvestment act;

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  1. Weingast, Barry R & Moran, Mark J, 1983. "Bureaucratic Discretion or Congressional Control? Regulatory Policymaking by the Federal Trade Commission," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(5), pages 765-800, October.
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  8. Weingast, Barry R & Marshall, William J, 1988. "The Industrial Organization of Congress; or, Why Legislatures, Like Firms, Are Not Organized as Markets," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(1), pages 132-63, February.
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