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A Cup Runneth Over: Fiscal Policy Spillovers from the 2009 Recovery Act

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  • Bill Dupor
  • Peter B. McCrory

Abstract

This article studies the effects of interregional spillovers from the American Recovery and Reinvestment Act of 2009 (the Recovery Act). Using cross†county commuting data, we cluster US counties into local labour markets, each of which we further partition into two subregions. We then compare differential labour market outcomes and Recovery Act spending at the regional and subregional levels. Among pairs of subregions, we find evidence of fiscal policy spillovers. According to our benchmark specification, $1 of Recovery Act spending in a subregion increases its own wage bill by $0.64 and increases the wage bill in its neighbouring subregion by $0.50 during the first two years following the Act's passage. The spillover effect occurs in the service sector, whereas the direct effect occurs in both the services and goods†producing sector.

Suggested Citation

  • Bill Dupor & Peter B. McCrory, 2018. "A Cup Runneth Over: Fiscal Policy Spillovers from the 2009 Recovery Act," Economic Journal, Royal Economic Society, vol. 128(611), pages 1476-1508, June.
  • Handle: RePEc:wly:econjl:v:128:y:2018:i:611:p:1476-1508
    DOI: 10.1111/ecoj.12475
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    References listed on IDEAS

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    1. Ana Maria Santacreu, 2005. "Reaction functions in a small open economy: What role for non-traded inflation?," Working Papers 2014-44, Federal Reserve Bank of St. Louis.
    2. 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 118-145, August.
    3. Roel Beetsma & Massimo Giuliodori, 2011. "The Effects of Government Purchases Shocks: Review and Estimates for the EU," Economic Journal, Royal Economic Society, vol. 121(550), pages 4-32, February.
    4. 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.
    5. Robert P. Inman & Gerald A. Carlino, 2013. "Macro fiscal policy in economic unions: states as agents," Working Papers 13-40, Federal Reserve Bank of Philadelphia, revised 2013.
    6. Raj Chetty & Nathaniel Hendren & Patrick Kline & Emmanuel Saez, 2014. "Where is the land of Opportunity? The Geography of Intergenerational Mobility in the United States," The Quarterly Journal of Economics, Oxford University Press, vol. 129(4), pages 1553-1623.
    7. repec:hrv:faseco:30750027 is not listed on IDEAS
    8. 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.
    9. 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, revised 2010.
    10. Thorsten Drautzburg & Harald Uhlig, 2015. "Fiscal Stimulus and Distortionary Taxation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(4), pages 894-920, October.
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    Citations

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    Cited by:

    1. Dupor, Bill & Guerrero, Rodrigo, 2017. "Local and aggregate fiscal policy multipliers," Journal of Monetary Economics, Elsevier, vol. 92(C), pages 16-30.
    2. William D. Dupor, 2015. "Local Fiscal Multipliers, Negative Spillovers and the Macroeconomy," Working Papers 2015-26, Federal Reserve Bank of St. Louis.
    3. William D. Dupor & M. Saif Mehkari, 2015. "Schools and Stimulus," Working Papers 2015-4, Federal Reserve Bank of St. Louis, revised 31 Oct 2019.
    4. Marianna Kudlyak & Marios Karabarbounis & Bill Dupor & M. Saif Mehkari, 2018. "Regional Consumption Responses and the Aggregate Fiscal Multiplier," Working Paper Series 2018-4, Federal Reserve Bank of San Francisco, revised 20 Feb 2018.
    5. Gabriel Chodorow-Reich, 2017. "Geographic Cross-Sectional Fiscal Multipliers: What Have We Learned?," Working Paper 458091, Harvard University OpenScholar.
    6. William D. Dupor, 2017. "So, Why Didn’t the 2009 Recovery Act Improve the Nation’s Highways and Bridges?," Review, Federal Reserve Bank of St. Louis, pages 169-182.

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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