Year of Publication

2012

College

Martin School of Public Policy and Administration

Executive Summary

The American Recovery and Reinvestment Act of 2009 is one of the largest government responses to an economic crisis in the history of the United States. The purpose of this paper is to examine the determinants of the total funds awarded to states by federal agencies in the Recovery Act. A review of budgetary theory, distributive politics, and electoral vote maximization theory provides context of historical determinants of resource allocation by the federal government.

Then from this literature I develop a model including economic and political variables. The dependent variable in my model is the total funds awarded to the fifty states expressed per capita for thirty-four federal agencies between February 17, 2009 and December 31, 2011. I organize the data into a panel for 1700 observations and use regression with agency fixed-effects to control for the average differences across agencies in observable and unobservable ways. I also cluster by state because the variances vary systematically based on unobserved, correlated state characteristics.

The analysis provides strong evidence that four of my chosen independent variables affected the funds awarded in the American Recovery and Reinvestment Act. Economically, the total revenue growth of a state between 2007 and 2008 and the amount of federal aid received per capita have positive and statistically significant relationships with the amount of funds awarded. Politically, the presidential election competitiveness of states and the number of Representatives serving on the House Full Committee on Appropriations have negative and statistically significant relationships with the dependent variable. The results suggest that the awarding of funds in the American Recovery and Reinvestment Act are consistent with the literature indicating that a combination of politics and economics matter in allocating scarce resources among alternative uses.

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