Recovery and Reinvestment Act spending at the state level: Keynesian stimulus or distributive politics?

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 are associated with majority party House of Representative appropriations subcommittee and authorization committee membership. One striking result is that the elasticity of ARRA spending with respect to the pre-ARRA ratio of federal grants and payments to federal taxes paid is estimated to be greater than unity in most specifications. States previously capturing large amounts of federal funds continue to do so under the ARRA stimulus. Copyright Springer Science+Business Media, LLC 2013