Does Fiscal Policy Reduce Unemployment? Evidence from Pork-Barrel Spending

Abstract

Studies of the effect of government spending on unemployment are potentially confounded by reverse causality. To address the endogeneity problem, we exploit variation in a pork-barrel road-building program, and find that higher government expenditure on road-building substantially reduces local unemployment.

Keywords: fiscal policy, unemployment, partisanship

JEL Classification: E24, E62, H30, H54