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 pre-recession 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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The effects of increasing income on environmental quality is an issue that has long puzzled economists. For over a decade, economists have theorized that a graph of environmental degradation versus income often looks something approximating an inverted-U shape, dubbed the environmental Kuznets curve (EKC) after Simon Kuznets' work in the 1950s and 1960s on income equality (Kuznets 1955, 1965). Among the reasons why economists have found the effects of increasing income on environmental quality so intriguing is that the answers to this question would help resolve fundamental issues concerning humanity's ability to develop economically, while still preserving the environment. Some economists hypothesize that there is a causal relationship between income and environmental degradation, and that the relation is in the shape of an inverted U: as countries "get rich, … first [environmental] problems increase, and then they decrease" (Lomborg and Pope 2003, p.9). According to this theory, the solution to environmental problems is to alleviate poverty.

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