Fiscal Policy Spillovers: Points of Employment to Places of Residence

Peter McCrory and Bill Dupor
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Peter McCrory: Federal Reserve Bank of St. Louis

No 47, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: In this paper, we study the effects of interregional spillovers from the government spending component of the American Recovery and Reinvestment Act of 2009 (the Recovery Act). Using cross-county Census Journey to Work commuting data, we cluster U.S. counties into local labor markets, each of which we further partition into two subregions. We then compare differential labor market outcomes and Recovery Act spending at the regional and subregional levels using instrumental variables. Among pairs of subregions, we find evidence of fiscal policy spillovers. For example, $1 of Recovery Act spending in a large subregion increases its own wage bill by $0.79 and increases the wage bill in its neighboring subregion by $0.59. We find similar spillover effects when we replace the wage bill with employment as our measure of economic activity. Next, we build a dynamic equilibrium trade model with interregional commuting capable of propagating these spillovers across regions.

Date: 2015
New Economics Papers: this item is included in nep-pbe and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed015:47

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