Excess Capacity and Heterogeneity in the Fiscal Multiplier: Evid ence from the Recovery Act joint with Arindrajit Dube, Thomas Hegl andy and Ben Zipperer
Abstract:
We estimate local multipliers using cross-county var iation in expenditure in the ARRA. We use within state variation, and inclu de other demographic controls as well as a predicted employment control usi ng an industry shift-share measure. We find that counties receiving more st imulus expenditures had followed parallel employment trends prior to the AR RA as compared to other counties. We estimate an average annualized employm ent multiplier of 1.211 job-years per $100K spent per county resident. We f ind strong evidence of heterogeneous treatment effects: the employment resp onse is much greater in counties hit harder by the Great Recession, and hen ce with likely greater excess capacity. In below median excess capacity cou nties, the employment multiplier is 0.39. In above median excess capacity c ounties, the multiplier rises to 2.83. These findings imply that an employm ent-maximizing stimulus package targeted to high excess capacity counties w ould have created 83% more (3.60 million) jobs. While our findings are cons istent with state-dependent fiscal multipliers, the heterogeneity is not du e to the zero-lower bound since our cross-sectional variation in excess cap acity holds the interest rate constant. Instead, our findings suggest that the spatial variation in multipliers reflects variation in the depth of the recession across different labor markets. Consistent with the evidence on hysteresis, we find that the employment impact of the stimulus was long las ting and have likely persisted through the current expansion.
DTSTAMP:20260403T183527Z DTSTART:20190530T163000Z DTEND:20190530T180000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR