Using State Pension Shocks to Estimate Fiscal Multipliers since the Great Recession
American Economic Review · 2013 · Volume 103 · Issue 3
Abstract
Has government spending raised income and employment since 2008? I use new data on state pension returns during the Great Recession to recover exogenous changes in spending. Instrumenting with these return shocks, I estimate that each dollar of windfall-financed spending raised local incomes by $1.43 and every additional $22,011 of spending created one contemporaneous job. These estimates are similar to those found in Shoag (2010) despite the non-overlapping datasets. Unlike Shoag (2010), however, the bulk of the employment increase post-2008 stems from decreases in unemployment rather than increased labor force participation.
Keywords
Macroeconomics: Production, Business Fluctuations, Cycles, Monetary Policy, Fiscal Policy, Financial Crises, Social Security and Public Pensions, Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
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