Was the American Recovery and Reinvestment Act an Economic Stimulus?

Barbara Klein and Klaas Staal ()
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Barbara Klein: IAAK, University of Bonn
Klaas Staal: IAAK, University of Bonn

International Advances in Economic Research, 2017, vol. 23, issue 4, No 3, 395-404

Abstract: Abstract The American Recovery and Reinvestment Act (ARRA) of 2009 envisaged a fiscal stimulus of approximately $800 billion, the largest in American history. Chodorow-Reich et al. (2012a) show that the state fiscal relief that was part of this stimulus increases employment. The other objective of ARRA was to “promote economic recovery”. We therefore examine its effect on states’ economic growth. Since the stimulus each state received is endogenous to a state’s economic environment, ordinary least squares underestimates the effect. This endogeneity problem is addressed by using a state’s pre-recession Medicaid spending level to instrument for the ARRA fiscal relief each state receives. We find that the ARRA state fiscal relief has indeed had a positive effect on gross state products.

Keywords: American Recovery and Reinvestment Act; State fiscal relief; Endogeneity; Economic growth (search for similar items in EconPapers)
JEL-codes: E62 H50 R11 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11294-017-9655-7

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