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

See all articles by Gabriel Chodorow-Reich

Gabriel Chodorow-Reich

Harvard University Department of Economics

Laura Feiveson

Board of Governors of the Federal Reserve System

Zachary D. Liscow

Yale University - Law School

William A Woolston

Stanford University - Department of Economics

Date Written: August 1, 2012

Abstract

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

Chodorow-Reich, Gabriel and Feiveson, Laura and Liscow, Zachary D. and Woolston, William A, Does State Fiscal Relief During Recessions Increase Employment? Evidence from the American Recovery and Reinvestment Act (August 1, 2012). 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 . Available at SSRN: https://ssrn.com/abstract=1960632

Gabriel Chodorow-Reich

Harvard University Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
6174963226 (Phone)
6174963226 (Fax)

HOME PAGE: http://scholar.harvard.edu/chodorow-reich

Laura Feiveson

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Zachary D. Liscow

Yale University - Law School ( email )

127 Wall St.
New Haven, CT 06511
United States

William A Woolston (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

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