Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/244316 
Year of Publication: 
2021
Series/Report no.: 
Working Paper No. 2021-13
Publisher: 
Federal Reserve Bank of Atlanta, Atlanta, GA
Abstract: 
Using American Recovery and Reinvestment Act (ARRA) data, we show that firms lever their political connections to win stimulus grants and that public expenditure channeled through politically connected firms hinders job creation. We build a unique database that links information on campaign contributions, state legislative elections, firm characteristics, and ARRA grant allocation. Using exogenous variation in political connections based on ex-post close elections held before ARRA, we causally show that politically connected firms are 38 percent more likely to secure a grant. Based on an instrumental variable approach, we also establish that a one standard deviation increase in the share of politically connected ARRA spending lowers the number of jobs created per $1 million spent by 7.1 jobs. Therefore, the impact of fiscal stimulus is not only determined by how much is spent, but also by how the expenditure is allocated across recipients.
Subjects: 
campaign finance
state grants
public expenditure allocation
American Recovery and Reinvestment Act
JEL: 
D22
D72
E62
H57
P16
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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