Does State Fiscal Relief during Recessions Increase Employment? Evidence from the American Recovery and Reinvestment Act

Gabriel Chodorow-Reich, Laura Feiveson, Zachary Liscow and William Gui Woolston

American Economic Journal: Economic Policy, 2012, vol. 4, issue 3, 118-45

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 prerecession 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. (JEL H75, I18, I38, R23)

JEL-codes: H75 I18 I38 R23 (search for similar items in EconPapers)
Date: 2012
Note: DOI: 10.1257/pol.4.3.118
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Citations: View citations in EconPapers (201)

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