Does State Fiscal Relief During Recessions Increase Employment? Evidence from the American Recovery and Reinvestment Act
University of California, Berkeley - Department of Economics
Massachusetts Institute of Technology (MIT)
Yale Law School
Stanford University - Department of Economics
August 16, 2011
American Economic Journal: Economic Policy, Forthcoming
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 pre-recession 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.
Number of Pages in PDF File: 45
Keywords: state fiscal relief, employment outcomes, American Recovery and Reinvestment Act
JEL Classification: H72, H73, J68, E62Accepted Paper Series
Date posted: November 20, 2011
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