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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 3.8job years, 3.2 of which are outside the government, health, and education sectors. (JEL H75, 118, 138, R23).
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