Political Connections, Allocation of Stimulus Spending, and the Jobs Multiplier

Joonkyu Choi, Veronika Penciakova and Felipe Saffie

No 32574, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the role of firms’ political influence on the effectiveness of government spending using ARRA as a laboratory. Through an IV approach, we show that a 10 percentage points increase in the share of politically connected spending lowers the job creation effect of stimulus by 33 percent at the state level. We exploit ex-post close state-level elections to establish that firms that contributed to winning candidates create fewer jobs after winning grants. Using a quantitative general equilibrium model, we show that politically connected spending also lowers the aggregate jobs multiplier, and that the dampening effect is rationalized by connected firms charging higher markups.

JEL-codes: D72 E62 (search for similar items in EconPapers)
Date: 2024-06
New Economics Papers: this item is included in nep-pol and nep-soc
Note: EFG POL
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Political Connections, Allocation of Stimulus Spending, and the Jobs Multiplier (2021)
Working Paper: Political Connections, Allocation of Stimulus Spending, and the Jobs Multiplier (2021)
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