Arra Research Paper

Did the American Recovery and Reinvestment Act Help Those Most in Need? A County-Level Analysis

Mario J. Crucini, Nam T. Vu

NBER Working Paper No. 24093
Issued in December 2017
NBER Program(s):Economic Fluctuations and Growth, International Finance and Macroeconomics, Public Economics

One of the statements of purpose of the American Recovery and Reinvestment Act (ARRA) was “to assist those most impacted by the recession.” The ARRA is assessed along this dimension using theoretical concepts from the risk-sharing literature. We estimate a model of income dynamics using a county-level panel of wage income in order to isolate the innovation to income. We then regress these income shocks on ARRA transfers and find 13.1% of the shock is offset by the transfer. While this is a long way from complete risk-sharing, the impacts are economically and statistically significant. Surprisingly, there are large state-contingent effects in the second and third quartiles 25.6% and 15.7% versus a mere 8.5% in the first quartile. By this metric, the policy of helping those most in need was not achieved.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w24093

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Why Did the American Recovery and Reinvestment Act (ARRA) Fail — or Did it?

17 PagesPosted: 4 Sep 2015  

Date Written: April 15, 2012

Abstract

The United States Congress approved the American Recovery and Reinvestment Act (ARRA) on February 13, 2009. U.S. President Barack Obama signed the bill into law on February 17, 2009. ARRA was passed in response to widespread fears that the United States was in danger of slipping into a 1930s-style economic depression. After ARRA was enacted, related economic debate centered on tax reductions versus direct federal-government spending. Old arguments resurfaced about the effectiveness of the “New Deal” programs instituted by U.S. President Franklin Roosevelt; the 1936-1938 recession; and the theoretical views of both Keynesian and neoclassical economists.

Since ARRA was passed, a number of economists have criticized the effectiveness of the stimulus program. Criticisms have ranged from arguments that “the stimulus was too small to be effective” to assertions of ARRA’s failure to address the shortage of qualified workers in the labor force.

I briefly review some of these arguments and conduct empirical tests to determine their validity.

Keywords: ARRA, Stimulus, Recession, Recovery, GDP, Debt/GDP Ratio, Macroeconomics, Obama, Unemployment

JEL Classification: E62, E63, H30

Suggested Citation:Suggested Citation

Reid, L. Jan, Why Did the American Recovery and Reinvestment Act (ARRA) Fail — or Did it? (April 15, 2012). Available at SSRN: https://ssrn.com/abstract=2655957 or http://dx.doi.org/10.2139/ssrn.2655957

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