The local fiscal multiplier of intergovernmental grants: evidence from federal medicaid assistance to states

Seth H. Giertz () and Anil Kumar ()
Additional contact information
Seth H. Giertz: The University of Texas at Dallas
Anil Kumar: Federal Reserve Bank of Dallas

International Tax and Public Finance, 2024, vol. 31, issue 5, No 2, 1204-1228

Abstract: Abstract Advocates of Medicaid expansion argue that federal Medicaid assistance to states fosters economic activity, generating positive local multiplier effects. Furthermore, during economic downturns, Congress regularly tweaks federal match rates for state Medicaid spending—including during the COVID-19 public health emergency—in order to assist states. Despite heavy reliance on Medicaid funding formulas, identifying the economic effect of these federal transfers has proved challenging. This is because federal Medicaid assistance (to states) is endogenous since funding levels are correlated with unobserved factors driving state economic activity. To address this concern, we construct an instrument based on a nonlinearity in the federal matching rate for state Medicaid spending. Using state-level panel data from 1990 to 2013, we find that federal Medicaid assistance does stimulate economic activity, but the implied cost per job created is quite high, and the multiplier is well below 1. Despite modest economic effects over the entire sample period, we find that federal Medicaid assistance provided powerful fiscal stimulus to states after the Great Recession when the implied multiplier exceeded 1.

Keywords: Fiscal multiplier; Fiscal stimulus; Medicaid matching grants (search for similar items in EconPapers)
JEL-codes: C31 E62 H31 I38 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10797-023-09792-y Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:31:y:2024:i:5:d:10.1007_s10797-023-09792-y

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/10797/PS2

DOI: 10.1007/s10797-023-09792-y

Access Statistics for this article

International Tax and Public Finance is currently edited by Ronald B. Davies and Kimberly Scharf

More articles in International Tax and Public Finance from Springer, International Institute of Public Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().