This paper examines how state governments adjusted spending in response to the large temporary increase in federal highway grants under the 2009 American Recovery and Reinvestment Act (ARRA). The mechanism used to apportion ARRA highway grants to states allows one to isolate exogenous changes in these grants. The results indicate that states increased highway spending over 2009 to 2011 more than dollar-for-dollar with the ARRA grants they received. Rent-seeking efforts are shown to help explain this result: states with more political contributions from the public works sector to the governor and state legislators tended to spend more out of their ARRA highway funds than other states.
Leduc, Sylvain, and Daniel Wilson.
"Are State Governments Roadblocks to Federal Stimulus? Evidence on the Flypaper Effect of Highway Grants in the 2009 Recovery Act."
American Economic Journal: Economic Policy,
National Government Expenditures and Related Policies: Infrastructures; Other Public Investment and Capital Stock
State and Local Government: Other Expenditure Categories
Transportation Economics: Government and Private Investment Analysis; Road Maintenance, Transportation Planning
Public Facility Location Analysis; Public Investment and Capital Stock