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Was the American Recovery and Reinvestment Act an Economic Stimulus?

Author

Listed:
  • Barbara Klein

    (IAAK, University of Bonn)

  • Klaas Staal

    (IAAK, University of Bonn
    Karlstad Business School, Karlstad University)

Abstract

The American Recovery and Reinvestment Act (ARRA) of 2009 envisaged a fiscal stimulus of approximately $800 billion, the largest in American history. Chodorow-Reich et al. (2012a) show that the state fiscal relief that was part of this stimulus increases employment. The other objective of ARRA was to “promote economic recovery”. We therefore examine its effect on states’ economic growth. Since the stimulus each state received is endogenous to a state’s economic environment, ordinary least squares underestimates the effect. This endogeneity problem is addressed by using a state’s pre-recession Medicaid spending level to instrument for the ARRA fiscal relief each state receives. We find that the ARRA state fiscal relief has indeed had a positive effect on gross state products.

Suggested Citation

  • Barbara Klein & Klaas Staal, 2017. "Was the American Recovery and Reinvestment Act an Economic Stimulus?," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 23(4), pages 395-404, November.
    • Handle: RePEc:kap:iaecre:v:23:y:2017:i:4:d:10.1007_s11294-017-9655-7
    DOI: 10.1007/s11294-017-9655-7
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    References listed on IDEAS

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    1. Gerald Carlino & Robert P. Inman, 2016. "Fiscal Stimulus in Economic Unions: What Role for States?," Tax Policy and the Economy, University of Chicago Press, vol. 30(1), pages 1-50.
    2. Daniel J. Wilson, 2012. "Fiscal Spending Jobs Multipliers: Evidence from the 2009 American Recovery and Reinvestment Act," American Economic Journal: Economic Policy, American Economic Association, vol. 4(3), pages 251-282, August.
    3. Gabriel Chodorow-Reich & Laura Feiveson & Zachary Liscow & 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, American Economic Association, vol. 4(3), pages 118-145, August.
    4. Jason Seligman, 2012. "Support of State and Local Finance under Persistent Federal Deficits," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 18(4), pages 383-395, November.
    5. Sylvain Leduc & Daniel Wilson, 2017. "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, American Economic Association, vol. 9(2), pages 253-292, May.
    6. Conley, Timothy G. & Dupor, Bill, 2013. "The American Recovery and Reinvestment Act: Solely a government jobs program?," Journal of Monetary Economics, Elsevier, vol. 60(5), pages 535-549.
    7. James Feyrer & Bruce Sacerdote, 2011. "Did the Stimulus Stimulate? Real Time Estimates of the Effects of the American Recovery and Reinvestment Act," NBER Working Papers 16759, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Klaas Staal, 2020. "State-level Federal Stimulus Funds and Economic Growth: The American Recovery and Reinvestment Act," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 26(1), pages 33-43, February.

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    More about this item

    Keywords

    American Recovery and Reinvestment Act; State fiscal relief; Endogeneity; Economic growth;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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