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American Economic Journal: Economic Policy: Vol. 4 No. 3 (August 2012)

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

Article Citation

Chodorow-Reich, Gabriel, Laura Feiveson, Zachary Liscow, and William Gui Woolston. 2012. "Does State Fiscal Relief during Recessions Increase Employment? Evidence from the American Recovery and Reinvestment Act." American Economic Journal: Economic Policy, 4(3): 118-45.

DOI: 10.1257/pol.4.3.118

Abstract

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. (JEL H75, I18, I38, R23)

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Authors

Chodorow-Reich, Gabriel (U CA, Berkeley)
Feiveson, Laura (MIT)
Liscow, Zachary (U CA, Berkeley)
Woolston, William Gui (Stanford U)

JEL Classifications

H75: State and Local Government: Health; Education; Welfare; Public Pensions
I18: Health: Government Policy; Regulation; Public Health
I38: Welfare and Poverty: Government Programs; Provision and Effects of Welfare Programs
R23: Urban, Rural, Regional, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics

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