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

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'...

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Bibliographic Details
Published in:American economic journal. Economic policy 2012-08, Vol.4 (3), p.118-145
Main Authors: Chodorow-Reich, Gabriel, Feiveson, Laura, Liscow, Zachary, Woolston, William Gui
Format: Article
Language:English
Subjects:
American Recovery & Reinvestment Act 2009-US
Economic conditions
Economic models
Economic policy
Economic recessions
Economic statistics
Economic theory
Education
Employment
Expenditures
Federal budget
Government
Government spending
Health care policy
Local government
Medicaid
Outcome variables
Recessions
Reimbursement
Social policy
State budgets
Studies
Tax increases
Unemployment
United States federal budget
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Summary: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.
ISSN:1945-7731
1945-774X
DOI:10.1257/pol.4.3.118