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Using State Pension Shocks to Estimate Fiscal Multipliers since the Great Recession

  • Daniel Shoag
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    Has government spending raised income and employment since 2008? I use new data on state pension returns during the Great Recession to recover exogenous changes in spending. Instrumenting with these return shocks, I estimate that each dollar of windfall-financed spending raised local incomes by $1.43 and every additional $22,011 of spending created one contemporaneous job. These estimates are similar to those found in Shoag (2010) despite the non-overlapping datasets. Unlike Shoag (2010), however, the bulk of the employment increase post-2008 stems from decreases in unemployment rather than increased labor force participation.

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.103.3.121
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    File URL: http://www.aeaweb.org/aer/ds/may2013/P2013_4352_ds.zip
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    Article provided by American Economic Association in its journal American Economic Review.

    Volume (Year): 103 (2013)
    Issue (Month): 3 (May)
    Pages: 121-24

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    Handle: RePEc:aea:aecrev:v:103:y:2013:i:3:p:121-24
    Note: DOI: 10.1257/aer.103.3.121
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    1. Antonio Acconcia & Giancarlo Corsetti & Saverio Simonelli, 2011. "Mafia and Public Spending: Evidence on the Fiscal Multiplier from a Quasi-experiment," Economics Working Papers ECO2011/12, European University Institute.
    2. Daniel J. Wilson, 2012. "Fiscal Spending Jobs Multipliers: Evidence from the 2009 American Recovery and Reinvestment Act," American Economic Journal: Economic Policy, American Economic Association, vol. 4(3), pages 251-82, August.
    3. Clemens, Jeffrey & Miran, Stephen, 2010. "The effects of state budget cuts on employment and income," MPRA Paper 38715, University Library of Munich, Germany.
    4. Lauren Cohen & Joshua Coval & Christopher Malloy, 2011. "Do Powerful Politicians Cause Corporate Downsizing?," Journal of Political Economy, University of Chicago Press, vol. 119(6), pages 1015 - 1060.
    5. Gabriel Chodorow-Reich & Laura Feiveson & Zachary Liscow & William Gui Woolston, 2012. "Does State Fiscal Relief during Recessions Increase Employment? Evidence from the American Recovery and Reinvestment Act," American Economic Journal: Economic Policy, American Economic Association, vol. 4(3), pages 118-45, August.
    6. Valerie A. Ramey, 2011. "Identifying Government Spending Shocks: It's all in the Timing," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 1-50.
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