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Does State Fiscal Relief during Recessions Increase Employment? Evidence from the American Recovery and Reinvestment Act

Listed author(s):
  • Gabriel Chodorow-Reich
  • Laura Feiveson
  • Zachary Liscow
  • William Gui Woolston

The American Recovery and Reinvestment Act (ARRA) of 2009 included $88 billion of aid to state governments administered through the Medicaid reimbursement process. We examine the effect of these transfers on states' employment. Because state fiscal relief outlays are endogenous to a state's economic environment, OLS results are biased downward. We address this problem by using a state's prerecession Medicaid spending level to instrument for ARRA state fiscal relief. In our preferred specification, a state's receipt of a marginal $100,000 in Medicaid outlays results in an additional 3.8 job-years, 3.2 of which are outside the government, health, and education sectors. (JEL H75, I18, I38, R23)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/pol.4.3.118
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Article provided by American Economic Association in its journal American Economic Journal: Economic Policy.

Volume (Year): 4 (2012)
Issue (Month): 3 (August)
Pages: 118-145

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Handle: RePEc:aea:aejpol:v:4:y:2012:i:3:p:118-45
Note: DOI: 10.1257/pol.4.3.118
Contact details of provider: Web page: https://www.aeaweb.org/aej-policy
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  1. David S. Johnson & Jonathan A. Parker & Nicholas S. Souleles, 2004. "Household Expenditure and the Income Tax Rebates of 2001," NBER Working Papers 10784, National Bureau of Economic Research, Inc.
  2. Neumann, Todd C. & Fishback, Price V. & Kantor, Shawn, 2010. "The Dynamics of Relief Spending and the Private Urban Labor Market During the New Deal," The Journal of Economic History, Cambridge University Press, vol. 70(01), pages 195-220, March.
  3. Alberto Alesina & Guido Tabellini, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 403-414.
  4. 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.
  5. Valerie A. Ramey, 2011. "Can Government Purchases Stimulate the Economy?," Journal of Economic Literature, American Economic Association, vol. 49(3), pages 673-685, September.
  6. Juan Carlos Suárez Serrato & Philippe Wingender, 2016. "Estimating Local Fiscal Multipliers," NBER Working Papers 22425, National Bureau of Economic Research, Inc.
  7. James M. Poterba, 1993. "State Responses to Fiscal Crisis: The Effects of Budgetary Institutionsand Politics," NBER Working Papers 4375, National Bureau of Economic Research, Inc.
  8. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
  9. Claudia R. Sahm & Matthew D. Shapiro & Joel B. Slemrod, 2009. "Household response to the 2008 tax rebates: survey evidence and aggregate implications," Finance and Economics Discussion Series 2009-45, Board of Governors of the Federal Reserve System (U.S.).
  10. Jeffrey Clemens & Stephen Miran, 2012. "Fiscal Policy Multipliers on Subnational Government Spending," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 46-68, May.
  11. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle, 06.
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