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Did the American Recovery and Reinvestment Act Help Counties Most Affected by the Great Recession?

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  • Mario J. Crucini
  • Nam T. Vu

Abstract

One of the statements of purpose of the American Recovery and Reinvestment Act (ARRA) was “to assist those most impacted by the recession.” To consider this facet, the grants-in-aid portion of the ARRA is assessed from the perspective of fiscal federalism. We estimate a trend-stationary autoregressive model of county-level wage income dynamics where each county is subject to a common shock (with county-specific factor loading) and an idiosyncratic shock. We then ask if counties that experienced larger negative wage income shocks during the Great Contraction subsequently received more transfers per capita in the form of grants-in-aid. The fact that the negative business cycle shocks pre-date the passage of the ARRA and subsequent disbursements allows identification of the risk-pooling channel of the grants before fiscal multiplier effects confound these two channels. We find statistically significant and economically large risk-pooling effects.

Suggested Citation

  • Mario J. Crucini & Nam T. Vu, 2017. "Did the American Recovery and Reinvestment Act Help Counties Most Affected by the Great Recession?," NBER Working Papers 24093, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:24093
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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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