Recovery and Reinvestment Act Spending at the State Level: Keynesian Stimulus or Distributive Politics?
Andrew T. Young
West Virginia University - Division of Economics and Finance
Russell S. Sobel
The Citadel - School of Business Administration
September 8, 2010
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.
Number of Pages in PDF File: 42
Keywords: Fiscal Stimulus, Fiscal Policy, Political Economy, Public Choice, Congressional
JEL Classification: D7, H5, E6working papers series
Date posted: September 9, 2010
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