Does State Fiscal Relief During Recessions Increase Employment? Evidence from the American Recovery and Reinvestment Act
Chodorow-Reich, Gabriel, Laura Feiveson, Zachary Liscow, and 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, 4(3): 118-45
29 Pages Posted: 20 Nov 2011 Last revised: 18 Sep 2014
Date Written: August 1, 2012
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.
Keywords: state fiscal relief, employment outcomes, American Recovery and Reinvestment Act
JEL Classification: H72, H73, J68, E62
Suggested Citation: Suggested Citation