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

Chodorow-Reich, Gabriel; Feiveson, Laura; Liscow, Zachary D.; Woolston, William Gui

doi:10.1257/pol.4.3.118

Cited by 224 publications

(202 citation statements)

References 20 publications

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“…11 In other words, we assume that the system can stay for a long time in a regime. The advantage of this approach is that, once a regime is fixed, the model is linear and hence impulse responses are not functions of history (see Koop, Pesaran, and Potter (1996) for more details).…”

Section: Econometric Specificationmentioning

confidence: 99%

Measuring the Output Responses to Fiscal Policy

Auerbach

Gorodnichenko

2012

American Economic Journal: Economic Policy

1,046

700

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The impact of fiscal policy on output and its components has long been a central part of fiscal policy analysis. But, as has been made clear by the recent debate over the likely effects and desired composition of fiscal stimulus in the United States and abroad, there remains an enormous range of views over the strength of fiscal policy's macroeconomic effects, the channels through which these effects are transmitted, and the variations in these effects and channels with respect to economic conditions. In particular, the central issue is the size of fiscal multipliers when the economy is in recession.The gist of the recent literature on this issue has effectively been to echo earlier Keynesian arguments that government spending is likely to have larger expansionary effects in recessions than in expansions. Intuitively, when the economy has slack, expansionary government spending shocks are less likely to crowd out private consumption or investment. To the extent discretionary fiscal policy is heavily used in recessions to stimulate aggregate demand, the key empirical question is how the effects of fiscal shocks vary over the business cycle. The answer to this question is not only interesting to policymakers in designing stabilization strategies but it can also help the economics profession to reconcile conflicting predictions about the effects of fiscal shocks across different types of macroeconomic models.

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Section: Econometric Specificationmentioning

confidence: 99%

Measuring the Output Responses to Fiscal Policy

Auerbach

Gorodnichenko

2012

American Economic Journal: Economic Policy

1,046

700

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“…Another strand explicitly analyzes the effect of fiscal stimulus and, in particular, the Recovery Act on employment and income: Romer (2012), Wilson (2012), Chodorow-Reich, Feiveson, Liscow, andWoolston (2012), Conley and Dupor (2013), Serrato and Wingender (2016), Leduc and Wilson (2017), to name a few. The above literature typically ignores general equilibrium effects, which may bias the empirical estimates.…”

Section: Introductionmentioning

confidence: 99%

Regional Consumption Responses and the Aggregate Fiscal Multiplier

Dupor¹,

Karabarbounis²,

Kudlyak³

et al. 2021

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We use regional variation in the American Recovery and Reinvestment Act (2009-2012) to analyze the effect of government spending on consumer spending. Our consumption data come from household-level retail purchases in Nielsen and auto purchases from Equifax credit balances. We estimate that a $1 increase in county-level government spending increases consumer spending by $0.18. We translate the regional consumption responses to an aggregate fiscal multiplier using a multi-region, New Keynesian model with heterogeneous agents and incomplete markets. Our model successfully generates the estimated positive local multiplier, a result that distinguishes our incomplete markets model from models with complete markets. The aggregate consumption multiplier is 0.4, which implies an output multiplier higher than one. The aggregate consumption multiplier is almost twice the local estimate because trade linkages propagate government spending across regions.

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“…These studies exploit cross-state variations in ARRA spending to identify employment effects. From their estimate, Chodorow-Reich et al (2012) derive a fiscal multiplier of 2.1. Feyrer and Sacerdote (2011) find a multiplier of 2.0 if they exclude education related grants to individual states, which they argue did not have an effect on local governments spending.…”

Section: Introductionmentioning

confidence: 99%

Reassessing the Impact of the US Fiscal Stimulus: The Role of the Monetary Policy Stance

Hallett¹,

Rannenberg²,

Schreiber³

2017

IBR

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Cogan et al. (2009, 2010) claimed that the stimulus package passed by the United States Congress in February 2009 had a multiplier far below one. However, the stimulus' multiplier strongly depends on the assumed monetary policy response. Based on official statements from the Fed chairman, the general economic outlook, past behavior of the FOMC, optimal policy considerations, and from financial market expectations, we find that in February 2009, a reasonable prediction of the period of monetary accommodation would have exceeded 9 quarters. This implies that a plausible real time assessment of the stimulus' effects would have been more optimistic than Cogan et al.'s.

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

Cited by 224 publications

References 20 publications

Measuring the Output Responses to Fiscal Policy

Measuring the Output Responses to Fiscal Policy

Regional Consumption Responses and the Aggregate Fiscal Multiplier

Reassessing the Impact of the US Fiscal Stimulus: The Role of the Monetary Policy Stance

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