Recovery and Reinvestment Act Spending at the State Level: Keynesian Stimulus or Distributive Politics?

42 Pages Posted: 9 Sep 2010

See all articles by Andrew T. Young

Andrew T. Young

Texas Tech University - Rawls College of Business

Russell S. Sobel

The Citadel - School of Business

Date Written: September 8, 2010

Abstract

We examine the US state-level pattern of American Recovery and Reinvestment Act (ARRA) spending. We relate spending to (1) Keynesian determinants of countercyclical policy, (2) congressional power and dominance, and (3) presidential electoral vote importance. We find that the ARRA is, in practice, poorly-designed countercyclical stimulus. After controlling for political variables, coefficients on Keynesian variables are often statistically insignificant. When they are statistically significant they are often the “incorrect” sign. On the other hand, statistically significant effects associated with political variables are almost always of the sign predicted by public choice theory. One striking result is that the elasticity of ARRA spending with respect to the pre-ARRA levels of federal grants and payments to state and local governments is between 0.254 and 0.361. States previously capturing large amounts of federal funds continue to do so under the ARRA stimulus.

Keywords: Fiscal Stimulus, Fiscal Policy, Political Economy, Public Choice, Congressional

JEL Classification: D7, H5, E6

Suggested Citation

Young, Andrew T. and Sobel, Russell S., Recovery and Reinvestment Act Spending at the State Level: Keynesian Stimulus or Distributive Politics? (September 8, 2010). Available at SSRN: https://ssrn.com/abstract=1673913 or http://dx.doi.org/10.2139/ssrn.1673913

Andrew T. Young (Contact Author)

Texas Tech University - Rawls College of Business ( email )

Lubbock, TX 79409
United States

Russell S. Sobel

The Citadel - School of Business ( email )

171 Moultrie St.
Charleston, SC 29409
United States

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