CBO

CONGRESSIONAL BUDGET OFFICE

SECOND AND D STREETS, S.W.

WASHINGTON, D.C. 20515

Estimated Impact of the American 

Recovery and Reinvestment Act on 

Employment and Economic Output from 

July 2011 Through September 2011

November 2011
Pub. No. 4454
The Congress of the United States O Congressional Budget Office

A

REPORT

CBO

Estimated Impact of the American 

Recovery and Reinvestment Act on 

Employment and Economic Output from 

July 2011 Through September 2011

November 2011

Preface

CBO

The American Recovery and Reinvestment Act of 2009 (ARRA) contains provisions that 

are intended to boost economic activity and employment in the United States. Section 

1512(e) of the law requires the Congressional Budget Office (CBO) to comment on reports 

filed by recipients of ARRA funding that detail the number of jobs funded through their 

activities. This CBO report fulfills that requirement. It also provides CBO’s estimates 

of ARRA’s overall impact on employment and economic output in the third quarter of 

calendar year 2011, as well as over the entire period since February 2009. Those estimates—

which CBO considers more comprehensive than the recipients’ reports—are based on 

evidence from similar policies enacted in the past and on the results of various economic 

models.

Felix Reichling of CBO’s Macroeconomic Analysis Division wrote the report under the 

supervision of Wendy Edelberg and William Randolph. Jared Brewster, Mark Lasky, 

Benjamin Page, and Joshua Shakin contributed to the analysis. Kate Kelly edited the report, 

and Jeanine Rees prepared it for publication, Monte Ruffin printed it, and Linda Schimmel 

handled the distribution. This report, along with previous reports on the topic, is available on 

CBO’s Web site (www.cbo.gov).

Douglas W. Elmendorf

Director

November 2011

Contents

CBO

Measuring ARRA’s Impact Using Recipients’ Reports 2

Measuring ARRA’s Impact Using Economic Models and Historical Data 4

CBO’s Modeling Approach 4

Changes from CBO’s Previous Estimates of the Impact of ARRA 8

ARRA’s Long-Run Effects 8

Appendix: Evidence on the Economic Effects of Fiscal Stimulus 11

Tables

1. Estimated Macroeconomic Impact of the American Recovery and 

Reinvestment Act, 2009 to 2012 3

2. Estimated Output Multipliers of Major Provisions of the American 

Recovery and Reinvestment Act of 2009 6

CBO

Estimated Impact of the American 

Recovery and Reinvestment Act on 

Employment and Economic Output from 

July 2011 Through September 2011

In February 2009, in response to significant weakness 

in the economy, lawmakers enacted the American Recovery and Reinvestment Act (ARRA). The legislation’s 

numerous spending and revenue provisions can be 

grouped into several categories according to their focus:

 Providing funds to states and localities—for example, 

by raising federal matching rates under Medicaid, 

providing aid for education, and increasing financial 

support for some transportation projects;

 Supporting people in need—such as by extending and 

expanding unemployment benefits and increasing 

benefits under the Supplemental Nutrition Assistance 

Program (formerly the Food Stamp program);

 Purchasing goods and services—for instance, by funding construction and other investment activities that 

could take several years to complete; and

 Providing temporary tax relief for individuals and 

businesses—such as by raising exemption amounts for 

the alternative minimum tax, adding a new Making 

Work Pay tax credit, and creating enhanced deductions for depreciation of business equipment.

When ARRA was being considered, the Congressional 

Budget Office (CBO) and the staff of the Joint Committee on Taxation estimated that it would increase budget 

deficits by $787 billion between fiscal years 2009 and 

2019. CBO now estimates that the total impact over the 

2009–2019 period will amount to about $825 billion. By 

CBO’s estimate, close to half of that impact occurred in 

fiscal year 2010, and nearly 90 percent of ARRA’s budgetary impact was realized by the end of September 2011.

Various recipients of ARRA funds (most recipients of 

grants and loans, contractors, and subcontractors) are 

required to report, after the end of each calendar quarter, 

the number of jobs funded through ARRA. The law also 

requires CBO to comment on those reported numbers.1

During the third quarter of calendar year 2011, recipients 

reported, ARRA funded more than 400,000 full-timeequivalent (FTE) jobs.2

 Those reports, however, do not 

provide a comprehensive estimate of the law’s impact on 

U.S. employment, which could be higher or lower than 

the number of FTE jobs reported, for several reasons 

(in addition to any issues concerning the quality of the 

reports’ data).3

 First, some of the jobs included in 

1. Public Law 111-5, sections 1512(c) and 1512(e); 123 Stat. 115, 

288. This report is the ninth in CBO’s series of quarterly reports. 

For the previous report, see Congressional Budget Office, 

Estimated Impact of the American Recovery and Reinvestment Act on 

Employment and Economic Output from April 2011 Through June 

2011 (August 2011).

2. Data compiled from recipients’ reports (on jobs funded and other 

information) are shown at www.recovery.gov. Recipients were 

asked to calculate FTEs by taking the total number of hours 

worked in a quarter that were funded by ARRA and dividing the 

total by the number of hours that a full-time employee would 

have worked in that quarter.

3. For a discussion of data quality, see Government Accountability 

Office, Recovery Act: Opportunities to Improve Management and 

Strengthen Accountability over States’ and Localities’ Uses of Funds,

GAO-10-999 (September 2010), www.gao.gov/new.items/

d10999.pdf.
2 ESTIMATED IMPACT OF ARRA ON EMPLOYMENT AND ECONOMIC OUTPUT FROM JULY 2011 THROUGH SEPTEMBER 2011

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the reports might have existed even without the stimulus 

package, with employees working on the same activities 

or other activities. Second, the reports cover employers 

that received ARRA funding directly and those employers’ immediate subcontractors (the so-called primary 

and secondary recipients of ARRA funding) but not 

lower-level subcontractors. Third, the reports do not 

attempt to measure the number of jobs that were created 

or retained indirectly as a result of recipients’ increased 

income, and the increased income of their employees, 

which could boost demand for other products and services as they spent their paychecks. Fourth, the recipients’ 

reports cover only certain ARRA appropriations, which 

encompass about one-fifth of the total either spent by 

the government or conveyed through tax reductions in 

ARRA; the reports do not measure the effects of other 

provisions of the stimulus package, such as tax cuts and 

transfer payments (including unemployment insurance 

payments) to individual people. 

Estimating the law’s overall effects on employment 

requires a more comprehensive analysis than can be 

achieved by using the recipients’ reports. Therefore, 

looking at recorded spending to date along with estimates 

of the other effects of ARRA on spending and revenues, 

CBO has estimated the law’s impact on employment 

and economic output using evidence about the effects 

of previous similar policies and drawing on various 

mathematical models that represent the workings of the 

economy. On that basis, CBO estimates that ARRA’s 

policies had the following effects in the third quarter 

of calendar year 2011 compared with what would have 

occurred otherwise:

 They raised real (inflation-adjusted) gross domestic 

product (GDP) by between 0.3 percent and 

1.9 percent (see Table 1), 

 They lowered the unemployment rate by between 

0.2 percentage points and 1.3 percentage points,

 They increased the number of people employed by 

between 0.4 million and 2.4 million, and

 They increased the number of full-time-equivalent 

jobs by 0.5 million to 3.3 million. (Increases in FTE 

jobs include shifts from part-time to full-time work or 

overtime and are thus generally larger than increases in 

the number of employed workers.) 

The effects of ARRA on output peaked in the first half 

of 2010 and have since diminished, CBO estimates. 

The effects of ARRA on employment are estimated to lag 

slightly behind the effects on output; CBO estimates that 

the employment effects began to wane at the end of 2010 

and have continued to do so throughout 2011. Still, 

CBO estimates that, compared with what would have 

occurred otherwise, ARRA will raise real GDP in 2012 

by between 0.1 percent and 0.8 percent and will increase 

the number of people employed in 2012 by between 

0.2 million and 1.1 million. 

CBO’s current estimates differ in several regards from its 

previous estimates. First, the current estimates indicate a 

wider range of possible effects of changes in federal taxes 

and spending on economic output; specifically, the low 

end of the ranges is less than in CBO’s previous estimates. 

That change is based on the agency’s continuing review 

of relevant research. (For a discussion of that research, 

see the appendix to this report.) Second, CBO slightly 

decreased its estimate of the effect of infrastructure 

spending on output. And third, the agency’s current estimates reflect small revisions to its previous projections of 

the timing of changes to federal spending under ARRA.

Although CBO has examined data on output and 

employment during the period since ARRA’s enactment, 

those data are not as helpful in determining ARRA’s economic effects as might be supposed because isolating the 

effects would require knowing what path the economy 

would have taken in the absence of the law. Because that 

path cannot be observed, the new data add only limited 

information about ARRA’s impact. 

Measuring ARRA’s Impact Using 

Recipients’ Reports

ARRA requires primary and secondary recipients of more 

than $25,000 from appropriations made under the law 

to report a variety of information each calendar quarter. 

That group includes most grant and loan recipients, 

contractors, and subcontractors, but it excludes individual people. The information to be submitted includes 

the amount of funding received and spent; the name, 

description, and completion status of the project or 

activity funded; the number of jobs funded; and, for 

investments in infrastructure, the purpose and cost of the 

investment. Recipients who filed third-quarter reports 
ESTIMATED IMPACT OF ARRA ON EMPLOYMENT AND ECONOMIC OUTPUT FROM JULY 2011 THROUGH SEPTEMBER 2011 3

CBO

Table 1.

Estimated Macroeconomic Impact of the American Recovery and 

Reinvestment Act, 2009 to 2012

Source: Congressional Budget Office. 

Note: * = Between -0.05 and 0.05.

a. A year of full-time-equivalent employment is 40 hours of employment per week for one year.

in October 2011 reported the number of jobs on 

the basis of the number of employee hours paid for 

with ARRA funds in the quarter.4

According to those reports, 400,803 full-time-equivalent 

jobs were funded by ARRA during the third quarter.5

However, the reported number of jobs funded is not a 

comprehensive measure of ARRA’s effect on overall 

employment or even of those provisions of ARRA for 

Q1* 0.1 * * * ** 0.1

Q2 0.4 1.4 -0.1 -0.3 0.1 0.5 0.2 0.7

Q3 0.6 2.5 -0.2 -0.6 0.3 1.2 0.4 1.7

Q4 0.7 3.4 -0.3 -1.1 0.5 1.9 0.7 2.8

Q1 0.9 4.4 -0.3 -1.5 0.6 2.7 0.9 4.0

Q2 0.8 4.6 -0.4 -1.8 0.7 3.4 1.0 4.9

Q3 0.7 4.1 -0.4 -2.0 0.7 3.6 1.0 5.2

Q4 0.6 3.5 -0.3 -1.9 0.6 3.5 0.9 5.0

Q1 0.6 3.1 -0.3 -1.8 0.6 3.3 0.8 4.6

Q2 0.4 2.5 -0.3 -1.6 0.5 2.9 0.7 4.0

Q3 0.3 1.9 -0.2 -1.3 0.4 2.4 0.5 3.3

Q4 0.2 1.5 -0.2 -1.1 0.3 2.0 0.4 2.6

Q1 0.2 1.1 -0.1 -0.8 0.3 1.6 0.3 2.0

Q2 0.1 0.9 -0.1 -0.7 0.2 1.2 0.2 1.5

Q3 0.1 0.7 -0.1 -0.5 0.2 1.0 0.2 1.1

Q4 0.1 0.6 -0.1 -0.4 0.1 0.8 0.1 0.8

2009 0.4 1.8 -0.1 -0.5 0.2 0.9 0.3 1.3

2010 0.7 4.1 -0.4 -1.8 0.7 3.3 0.9 4.7

2011 0.4 2.2 -0.2 -1.4 0.5 2.6 0.6 3.6

2012 0.1 0.8 -0.1 -0.6 0.2 1.1 0.2 1.3

Calendar Year Average

2009 (Calendar Year Quarter)

2010 (Calendar Year Quarter)

2011 (Calendar Year Quarter)

2012 (Calendar Year Quarter)

Low High

Estimate Estimate Estimate Estimate Estimate Estimate Estimate Estimate

Low High Low High Low High

Product (Percent) (Percentage points) (Millions of people) Employment (Millions)a

Change Attributable to ARRA

Real Gross Domestic Unemployment Rate Employment Full-Time-Equivalent

4. Specifically, recipients were instructed to calculate the number 

of FTE jobs funded through ARRA by counting the total number 

of hours worked that were funded by ARRA during the third 

quarter, divided by the number of hours in a full-time schedule for 

a quarter. For details and examples, see Office of Management and 

Budget, “Recovery FAQs for Federal Contractors on Reporting,” 

www.whitehouse.gov/omb/recovery_faqs_contractors/#report15.

5. For the number of jobs by agency, see “Top Agencies, as Reported 

by Recipients (Jul 1–Sep 30, 2011),” www.recovery.gov/Pages/

TextView.aspx?data=jobSummaryAgency&topnumber=200

&qtr=2011Q3.
4 ESTIMATED IMPACT OF ARRA ON EMPLOYMENT AND ECONOMIC OUTPUT FROM JULY 2011 THROUGH SEPTEMBER 2011

CBO

which recipients’ reports are required. The actual impact 

could, in principle, be significantly larger or smaller than 

the number of jobs reported. 

If, for example, recipients’ reports include employment 

that would have occurred without ARRA, the impact on 

employment suggested by the reports could be too great. 

Some people whose employment was attributed to ARRA 

might have worked on other activities in the absence of 

the law—for example, a business might have bid on 

other projects if its resources had not been committed to 

projects funded by ARRA. In the case of government 

employees, state or local taxes might have been raised in 

the absence of ARRA funding (or transfer payments 

might have been reduced) to pay for some of the jobs that 

were counted as funded by ARRA. 

Conversely, the reported figure could be too low because 

the reporting requirement is limited to primary and 

secondary recipients of funds and thus excludes lowerlevel recipients, such as subcontractors hired by a main 

subcontractor. Thus, if expenditures under ARRA led 

to increases in employment among lower-level subcontractors and vendors, those effects would be missed by 

the reports. 

Recipients’ reports also do not include indirect effects 

that could increase or decrease the impact on employment. Among those effects are potential declines in 

employment in other businesses or economic sectors as 

demand shifts toward the recipients of ARRA funding—

a phenomenon often called the “crowding out” effect 

of government policies. Conversely, spending under 

ARRA could lead to higher employment at companies 

that are not directly connected to that spending—for 

example, because of additional purchases made by people 

who would be unemployed were it not for ARRA funds. 

CBO estimates that, under current conditions, the 

indirect effects, on net, would tend to reinforce the direct 

effects for most of the range of their estimated magnitude.

Finally, the recipients’ reports reflect only about one-fifth 

of the total amount of spending increases or tax reductions that are attributable to ARRA’s provisions. The 

reports cover direct government purchases of goods and 

services, grants and loans to private entities, and some 

grants to states and localities, but they do not cover tax 

cuts or increases in transfer payments to individuals. 

The tax reductions and spending that are not covered by 

the recipients’ reports probably had substantial effects on 

purchases of goods and services and, therefore, on 

employment.

Measuring ARRA’s Impact Using 

Economic Models and Historical Data

CBO used various economic models and historical 

data to guide its estimate of the way in which output 

and employment are affected by increases in outlays 

and reductions in revenues under ARRA. CBO’s 

assessment is that different elements of ARRA (such as 

particular types of tax cuts, transfer payments, and 

government purchases) have had different effects on economic output per dollar of higher spending or lower tax 

receipts. Multiplying estimates of those per-dollar effects 

by the dollar amounts of each element of ARRA yields an 

estimate of the law’s total impact on output. To produce 

estimates of ARRA’s total impact on employment, CBO 

combined that estimate with estimates of how changes in 

output affect the unemployment rate and participation 

in the labor force.

CBO’s Modeling Approach

CBO used evidence from models and historical relationships to determine estimated “multipliers” for each of 

several categories of spending and tax provisions in 

ARRA, as shown in Table 2 on page 6. Each multiplier 

represents the estimated direct and indirect effects on the 

nation’s output of a dollar’s worth of a given policy. 

Therefore, a provision’s multiplier can be applied to the 

budgetary cost of that provision to estimate its overall 

impact on output. 

Direct effects consist of immediate (or first-round) effects 

on economic activity. Government purchases of goods 

and services directly add to the nation’s output, dollar 

for dollar. For reductions in taxes, increases in transfer 

payments, and increases in aid to state and local governments, the size of the direct effect depends on the policy’s 

impact on the behavior of recipients. If someone receives 

a dollar in transfer payments and spends 80 cents (saving 

the other 20 cents), production increases over time to 

meet the additional demand generated by that spending, 

and the direct impact on output is 80 cents. Similarly, if a 

dollar in aid to a state government leads that government 

to spend 50 cents more on employees’ salaries (but causes 

no other changes in state spending or revenues, with the 

other 50 cents used to reduce borrowing or build up 

rainy-day funds), the direct impact on output is 50 cents.
ESTIMATED IMPACT OF ARRA ON EMPLOYMENT AND ECONOMIC OUTPUT FROM JULY 2011 THROUGH SEPTEMBER 2011 5

CBO

CBO reviewed evidence on the responses of households, 

businesses, and governments to various types of tax cuts 

and transfer payments to estimate the size of those policies’ direct effects on output.6

 For example:

 A one-time cash payment is likely to have less impact 

on a household’s purchases than is a longer-lasting 

change to disposable income because the one-time 

payment has a smaller effect on total lifetime disposable income. 

 Increases in disposable income are likely to boost purchases more for lower-income than for higher-income 

households. That difference arises, at least in part, 

because a larger share of people in lower-income 

households cannot borrow as much money as they 

would wish in order to spend more than they do 

currently. 

 Changes to corporate taxes that primarily affect aftertax profits on past investment generally have a smaller 

impact on output than do policies that alter the return 

from new investment. 

Government policies also can have indirect effects that 

enhance or offset the direct effects. Direct effects are 

enhanced when, for example, a government policy creates 

jobs and those who are hired use their income to 

boost consumption. Direct effects also are enhanced 

when greater demand for goods and services prompts 

companies to increase investment to bolster their future 

production. 

In the other direction, substantial government spending 

can cause a shift in resources (including employees) 

away from production in other businesses and sectors to 

government-funded projects. That indirect crowding-out 

effect could cause growth in employment among 

recipients of ARRA funding to be offset by declines in 

employment elsewhere in the economy. Increases in interest rates are one possible mechanism for such crowding 

out: Higher interest rates discourage spending on investment and on durable goods such as cars because they raise 

the cost of borrowing. However, because the Federal 

Reserve has kept short-term interest rates very low, that 

mechanism does not appear to have been an important 

factor through the third quarter of 2011. By another 

mechanism for crowding out, activities funded by ARRA 

could reduce production elsewhere in the economy if 

they used scarce materials or workers with specific skills, 

creating bottlenecks that hindered other activities. That 

effect, too, was probably much smaller in the past two 

and a half years than it might have been otherwise 

because of high unemployment and a large amount of 

unused resources (as well as the diversity of activities 

funded under ARRA). 

In estimating the magnitude of indirect effects, CBO 

relied heavily on estimates from macroeconometric forecasting models, informed by evidence from other types 

of models, direct estimation using historical data, and 

ongoing review of relevant research. (Those sources of 

information are discussed in the appendix.)

CBO grouped the provisions of ARRA into general categories and assigned high and low multipliers to each. The 

ranges for those multipliers were chosen judgmentally to 

encompass most economists’ views about the direct 

and indirect effects of different policies. The multipliers 

indicate the cumulative impact of policies on GDP over 

several quarters, and they should be understood to apply 

to periods when the Federal Reserve is holding short-term 

interest rates about as low as possible and would not 

tighten monetary policy in response to a fiscal stimulus, 

as has been the case over the past two years. For instance, 

CBO estimates that a one-time increase of $1 in federal 

purchases of goods and services in one calendar quarter 

last year raised GDP above what it would have been 

otherwise by a total of 50 cents to $2.50 over several 

quarters. That cumulative multiplier of $2.50 at the high 

end of the range comprises increases in GDP of roughly 

$1.45 in the quarter when the federal spending occurred, 

roughly 60 cents in the following quarter, and roughly 

45 cents in later quarters combined. By the end of 2015, 

when monetary policy is assumed to be fully responsive to 

fiscal stimulus, the estimated multipliers would be 

reduced by two-thirds.

6. On household spending, for example, see Jonathan A. Parker 

and others, Consumer Spending and the Economic Stimulus 

Payments of 2008, Working Paper 16684 (Cambridge, Mass.: 

National Bureau of Economic Research, January 2011); Matthew 

D. Shapiro and Joel Slemrod, “Did the 2008 Tax Rebates Stimulate Spending?” American Economic Review, vol. 9, no. 2 (May 

2009), pp. 374–379; Sumit Agarwal, Chunlin Liu, and Nicholas 

S. Souleles, “The Reaction of Consumer Spending and Debt to 

Tax Rebates: Evidence from Consumer Credit Data,” Journal of 

Political Economy, vol. 115, no. 6 (December 2007), pp. 986–

1019; and David S. Johnson, Jonathan A. Parker, and Nicholas S. 

Souleles, “Household Expenditure and the Income Tax Rebates of 

2001,” American Economic Review, vol. 96, no. 5 (December 

2006), pp. 1589–1610.
6 ESTIMATED IMPACT OF ARRA ON EMPLOYMENT AND ECONOMIC OUTPUT FROM JULY 2011 THROUGH SEPTEMBER 2011

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Table 2.

Estimated Output Multipliers of Major Provisions of the American Recovery and 

Reinvestment Act of 2009

Continued

The multipliers are applied to outlays when they occur 

and to changes in taxes or transfer payments when they 

affect disposable income. CBO’s estimates, therefore, 

account for the different rates of spending for various 

types of appropriations and, similarly, for the timing of 

different tax cuts or transfer payments. In some cases, 

when different elements of a single provision were estimated to have different multipliers, the total cost of a 

provision was divided among more than one category. 

In those cases, the provision is shown in Table 2 in the 

category to which most of its budgetary cost applied. 

Provisions that affect outlays (including refundable tax 

credits) are identified by the same names used in CBO’s 

cost estimate for the conference agreement on ARRA.7

Provisions that affect revenues are identified by the names 

used in the revenue estimate prepared by the staff of the 

Joint Committee on Taxation for the same legislation.8

The estimates of ARRA’s effects on output were translated into estimates of the effects on the unemployment 

rate, total employment, and FTE employment in a series 

Type of Activity Major Provisions of ARRA

Purchases of Goods and Services 0.5 2.5 Division A, Title II: Other; Title IV: Energy Efficiency and

by the Federal Government Renewable Energy; Title IV: Innovative Technology Loan

Guarantee Program; Title IV: Other Energy Programs; Title V: 

Federal Buildings Fund; Title VIII: National Institutes of Health;

Title VIII: Other Department of Health and Human Services

Transfer Payments to State and 0.4 2.2 Division A, Title VII: Clean Water and Drinking Water State 

Local Governments for Revolving Funds; Title XI: Other Housing Assistance; Title XII: 

Infrastructure Highway Construction; Title XII: Other Transportation 

Transfer Payments to State and 0.4 1.8 Division A, Title VIII: Education for the Disadvantaged; Title 

Local Governments for Other VIII: Special Education; Title IX: State Fiscal Stabilization Fund; 

Purposes Division B, Title V: State Fiscal Relief Fund

Transfer Payments to Individuals 0.4 2.1 Division A, Title I: Supplemental Nutrition Assistance Program; 

Title VIII: Student Financial Assistance; Division B, Title I: 

Refundable Tax Credits; Title II: Unemployment 

Compensation; Title III: Health Insurance Assistanceb

One-Time Payments to Retirees 0.2 1.0 Division B, Title II: Economic Recovery Payments

Two-Year Tax Cuts for Lower- 0.3 1.5 Division B, Title I: Making Work Pay Credit;

and Middle-Income People American Opportunity Tax Credit

One-Year Tax Cut for Higher- 0.1 0.6 Increase in Individual AMT Exemption Amount

Income People

Extension of First-Time 0.2 0.8 Extension of First-Time Homebuyer Credit

Homebuyer Credit

Estimated Output Multipliersa

Low Estimate High Estimate

7. See Congressional Budget Office, cost estimate for the conference 

agreement for H.R. 1, the American Recovery and Reinvestment 

Act of 2009 (February 13, 2009).

8. See Joint Committee on Taxation, Estimated Budget Effects of the 

Revenue Provisions Contained in the Conference Agreement for H.R. 1, 

JCX-19-09 (February 12, 2009), www.jct.gov/x-19-09.pdf.
ESTIMATED IMPACT OF ARRA ON EMPLOYMENT AND ECONOMIC OUTPUT FROM JULY 2011 THROUGH SEPTEMBER 2011 7

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Table 2. Continued

Estimated Output Multipliers of Major Provisions of the American Recovery and 

Reinvestment Act of 2009

Source: Congressional Budget Office. 

Notes: Provisions affecting outlays (including refundable tax provisions) are identified by the same names used by CBO in its cost estimate for 

the conference agreement for H.R. 1, the American Recovery and Reinvestment Act of 2009 (February 13, 2009). Provisions affecting 

revenues—all of which are included in title I of the American Recovery and Reinvestment Act of 2009 (ARRA)—are identified by the 

names used in the Joint Committee on Taxation’s (JCT’s) estimate (see www.house.gov/jct/x-19-09.pdf).

Some provisions include individual elements that have different multipliers, by CBO’s estimate; in those cases, the provisions are listed 

with the multiplier used for the majority of the 2009–2019 budgetary cost.

The economic impact of three tax provisions with budgetary costs over $5 billion was analyzed using a different methodology, and 

their effects cannot easily be summarized by a multiplier. Those provisions were titled “Extend by Three Years the Placed-in-Service 

Date for Each Section 45 Qualified Facility” and “One-Year Extension of Special Allowance for Certain Property Acquired During 2009” 

in JCT’s estimate and “Health Information Technology” in CBO’s estimate. Some other provisions, with total budgetary costs of less 

than $7 billion, were included in the analysis but are not shown in the table.

AMT = alternative minimum tax.

a. The output multiplier is the cumulative impact of spending under the provisions on gross domestic product over several quarters. The 

ranges shown in the table assume that the Federal Reserve is holding short-term interest rates about as low as possible and would not 

tighten monetary policy in response to a fiscal stimulus.

b. This provision is a reduction in taxes, but it is treated as having the same economic impact as transfer payments to individuals.

of steps. First, the impact on the output gap—the percentage difference between actual and potential output—

was calculated.9

 Next, the effect of the change in the output gap on the unemployment rate was estimated using 

the historical relationship between those two measures.10

Then, the effect of changes in the unemployment rate on 

the labor force was taken into account: If unemployment 

declines and the economic environment improves, discouraged workers and people who have chosen to pursue 

activities such as education rather than work will tend to 

return to the labor force. Together, the estimated effect 

on the unemployment rate and the effect on the labor 

force were used to estimate the impact on the number of 

people employed. The change in FTE employment was 

then estimated using the historical relationship between 

changes in hours per employed worker and changes in the 

gap between the unemployment rate and CBO’s estimate 

of the natural rate of unemployment.11 Because higher 

spending and lower taxes can affect output and unemployment for some time after they occur, the impact of 

ARRA on employment in the third quarter of 2011 

depended partly on the law’s effect on spending and 

revenues in previous years.

A key advantage of the model-based approach used in 

this analysis is the ability to provide estimates of the total 

effects throughout the economy of the government 

spending, transfer payments, and tax cuts resulting from 

Type of Activity Major Provisions of ARRA

Corporate Tax Provisions 0 0.4 Deferral and Ratable Inclusion of Income Arising from Business 

Primarily Affecting Cash Flow Indebtedness Discharged by the Reacquisition of a Debt 

Instrument; Clarification of Regulations Related to Limitations 

on Certain Built-In Losses Following an Ownership Change; 

Recovery Zone Bonds; Qualified School Construction Bonds 

Estimated Output Multipliersa

Low Estimate High Estimate

9. Potential output is the level of production that corresponds to a 

high rate of use of labor and capital. 

10. Changes in the output gap affect unemployment gradually over 

several quarters. Initially, part of a rise in output shows up as 

higher productivity and hours per worker rather than as reduced 

unemployment.

11. The natural rate of unemployment is the rate that arises from all 

sources except cyclical fluctuations in economywide demand for 

goods and services.
8 ESTIMATED IMPACT OF ARRA ON EMPLOYMENT AND ECONOMIC OUTPUT FROM JULY 2011 THROUGH SEPTEMBER 2011

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ARRA. By focusing on the net change in employment, 

that approach captures both the jobs created and the jobs 

retained as a result of ARRA.

A key disadvantage of the model-based approach is the 

considerable uncertainty about many of the economic 

relationships that are important in the modeling. Because 

economists differ on which analytical approaches provide 

the most convincing evidence about such relationships, 

they can reach different conclusions about those relationships. In addition, each study involves uncertainty about 

the extent to which the results reflect the true effects of 

a given policy or the effects of other factors. For those 

reasons, CBO provides ranges of estimates of ARRA’s 

economic effects that are intended to encompass most 

economists’ views and thereby reflect the uncertainty 

involved in such estimates.

Changes from CBO’s Previous Estimates of the 

Impact of ARRA 

The current estimates of the impact of ARRA on output 

and employment differ from those CBO presented in 

August 2011 because CBO has adjusted its methodology 

and slightly revised its projections of the timing of 

changes in federal spending as a result of ARRA. All 

told, CBO’s estimate of the increase in employment 

attributable to ARRA for calendar year 2011 was revised 

downward from a range of 1.2 million to 3.7 million 

FTE jobs to a range of 0.6 million to 3.6 million FTE jobs. 

The largest change affected the lower end of the range 

of CBO’s estimates. On the basis of its continuing review 

of relevant research, CBO has decreased the lower end 

of its range of estimated indirect multiplier effects from 

1.0 to 0.5, while leaving the upper end of the range 

unchanged at 2.5.12 The indirect multiplier effect is 

applied to the direct multiplier effect of all changes in 

federal taxes and spending due to ARRA. As a result, 

CBO’s low estimates of ARRA’s effect on output and 

employment for each year are now smaller than its previous low estimates.

CBO has also slightly lowered its estimate of the output 

multipliers for infrastructure spending. The current 

estimate reflects the assumption that states reduce spending for infrastructure out of their own funds by about 

one-half of any increase in federal outlays for infrastructure, an offset that is consistent with evidence about 

the behavior of states in the past. In contrast, CBO’s earlier estimates did not include such an offset. Reductions 

in states’ spending for infrastructure allow states to raise 

less in taxes or spend more for other purposes, thus having the same effect as additional federal aid to states for 

purposes other than infrastructure. Incorporating those 

effects on state policies slightly reduces the estimated 

effects of federal infrastructure spending on output and 

employment relative to CBO’s earlier estimates because 

aid to states for other purposes is estimated to have 

smaller economic effects, on average, than infrastructure 

spending. 

CBO has also revised its estimate of when certain outlays 

resulting from ARRA will occur. Revised data about 

refundable tax credits indicate that such outlays were 

larger earlier in 2011 than CBO previously estimated. In 

contrast, total outlays of ARRA funds between July and 

September 2011 were several billion dollars less than 

previously estimated because spending on information 

technology related to health care, on education, and on 

highways was less than anticipated. Those outlays are 

now expected to occur over the next few quarters. 

The effects of the changes in the output multipliers for 

infrastructure spending and in the timing of outlays 

resulting from ARRA are quite small: CBO’s high estimate of employment effects for each of the years 2010 

and 2011 declined by 0.1 million FTE jobs. 

ARRA’s Long-Run Effects 

In contrast to its positive near-term macroeconomic 

effects, ARRA will reduce output slightly in the long run, 

CBO estimates—by between zero and 0.2 percent after 

2016. But CBO expects that the legislation will have no 

12. A recent survey of studies based on certain types of historical 

evidence shows that estimates of indirect multipliers range from 

-0.3 to 3.6, although most of the estimates based on this empirical 

approach fall between 0.5 and 2.0. (See Valerie A. Ramey, 

“Can Government Purchases Stimulate the Economy?” Journal of 

Economic Literature, vol. 49, no. 3 [September 2011], pp. 673–

685. CBO also benefitted from discussions of this topic with its 

Panel of Economic Advisers.) Several of those studies yield estimates that average between 0.5 and 1.0 over a long historical 

period. However, those studies do not specifically provide estimates for a period in which unemployment is high and interest 

rates are very low, as is true for the current period. CBO, which 

bases its estimates on information from various sources, has 

reduced its estimate of the low end of the range for the indirect 

multiplier effect to encompass the views of economists whose 

work shows multipliers of less than one. (See the appendix for 

more discussion of the basis for CBO’s range of multipliers.)
ESTIMATED IMPACT OF ARRA ON EMPLOYMENT AND ECONOMIC OUTPUT FROM JULY 2011 THROUGH SEPTEMBER 2011 9

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long-term effects on employment because the U.S. economy will have a high rate of use of its labor resources in 

the long run.13

ARRA’s long-run impact on the economy stems primarily 

from the resulting increase in government debt.14 To the 

extent that people hold their wealth in government securities rather than in a form that can be used to finance 

private investment, the increased debt tends to reduce the 

stock of productive private capital. In the long run, each 

dollar of additional debt crowds out about a third of a 

dollar’s worth of private domestic capital, CBO estimates. 

(The remainder of the rise in debt is offset by increases in 

private saving and inflows of foreign capital.) Because of 

uncertainty about the degree of crowding out, however, 

CBO’s range of estimates of ARRA’s long-run effects 

reflects the possibility that the extent of crowding out 

could be more or less than one-third of the added debt.

Over the long term, the output of the economy depends 

on the stock of productive capital, the supply of labor, 

and productivity. The less productive capital there is as 

a result of lower private investment, the smaller will be 

the nation’s output over the long run.

The effect of the crowding-out of some private investment under ARRA will be offset somewhat by other 

factors. Some of ARRA’s provisions, including its funding 

for roads and highways, may add to the economy’s potential output in much the same way that private capital 

investment does. Others, including its funding of education, may raise long-term productivity by enhancing 

people’s skills. Still other provisions create incentives for 

increased private investment. According to CBO’s estimates, the provisions that potentially add to long-term 

output account for between one-fifth and one-quarter of 

ARRA’s budgetary cost. 

ARRA’s long-run effect on output also depends on 

whether it permanently changed people’s saving or their 

ability or willingness to work. For example, to the extent 

that ARRA reduced long-term unemployment during the 

2009–2011 period, it might improve participation in 

the labor force, employment, and productivity in later 

years. However, CBO’s estimates of the long-term effects 

of ARRA do not incorporate any effects of that sort.

13. The reduction in GDP is therefore estimated to be reflected in 

lower wages rather than less employment, as workers will be 

slightly less productive because the capital stock will be slightly 

smaller. See Congressional Budget Office, letter to the Honorable 

Judd Gregg concerning the estimated macroeconomic impacts of 

H.R. 1 as passed by the House and the Senate (February 11, 

2009).

14. For a discussion of the long-run effects of other debt-financed 

policies for boosting output and employment, see statement of 

Douglas W. Elmendorf, Director, Congressional Budget Office, 

before the Senate Committee on the Budget, Policies for Increasing 

Economic Growth and Employment in 2012 and 2013 (November 

15, 2011).

CBO

Appendix: 

Evidence on the Economic Effects of Fiscal Stimulus

The Congressional Budget Office (CBO) based 

its estimates of the economic effects of the American 

Recovery and Reinvestment Act of 2009 (ARRA) on 

information from various sources—macroeconometric 

forecasting models, general-equilibrium models, and 

direct extrapolations from historical data. Macroeconometric forecasting models incorporate relationships 

among aggregate economic variables that are based largely 

on historical evidence. General-equilibrium models, by 

contrast, are built on explicit assumptions about the decisionmaking of individual people and businesses. Direct 

extrapolations of historical data are generally based on 

correlations among economic variables in the past or on 

the effects of specific types of policy events in the past.1

Macroeconometric Forecasting Models

In analyzing ARRA’s economic effects, CBO drew heavily 

on versions of the commercial forecasting models of two 

economic consulting firms, Macroeconomic Advisors and 

Global Insight, and on the FRB-US model used at the 

Federal Reserve Board. Those models incorporate the 

assumption that the economy has an underlying potential 

output determined by the size of the labor supply, the 

capital stock, and technology. They also reflect the 

assumption that actual output can change relative to 

potential output because of shifts in aggregate demand 

for goods and services from households, businesses, and 

the government. With those basic assumptions, the 

details of interactions among economic variables in the 

models are based largely on historical relationships, 

informed by theories of how those variables are determined (for example, the theory that total consumption 

depends mostly on disposable income, wealth, and 

interest rates).2

 Because they emphasize the influence of 

aggregate demand on output in the short run, the macroeconometric forecasting models tend to predict greater 

economic effects from demand-enhancing policies such 

as ARRA than some other types of models do.

Macroeconometric forecasting models of this sort are 

used widely, and they underlie most of the forecasts 

offered to the clients of economic consulting firms. In 

addition, the models that CBO uses generally produce 

results that are roughly in line with the consensus of 

private-sector forecasters, as compiled in the Blue Chip 

Economic Indicators. However, some analysts criticize this 

sort of model for being based on historical relationships 

among aggregate economic variables, such as income and 

consumption, rather than being built up from clearly 

specified rules governing the behavior of households and 

businesses. In particular, some critics argue that models 

based on historical relationships will not provide accurate 

predictions in the face of new policies or new circumstances. Partly to address that concern, CBO presents a 

range of possible effects rather than a single number for 

each economic variable.

To reflect current economic conditions—in which there 

is considerable uncertainty about the financial and economic outlook and in which short-term interest rates are 

low and are expected to remain so for some time—CBO 

altered the models’ usual formulation to reduce the extent 

to which interest rates respond to increases in output3

Under more normal economic conditions, higher interest 

rates would offset roughly two-thirds of the cumulative 

impact of stimulative policies on gross domestic product 

over two years.4
12 ESTIMATED IMPACT OF ARRA ON EMPLOYMENT AND ECONOMIC OUTPUT FROM JULY 2011 THROUGH SEPTEMBER 2011

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General-Equilibrium Models 

Some analysts prefer to use an alternative class of models, 

which tend to imply more modest economic effects 

from such policies. In those models, people are assumed 

to make decisions about how much to work, buy, and 

save on the basis of current and expected future values 

of the wage rate, interest rates, taxes, and government 

purchases, among other things. In the basic form of 

such models, stimulative policies tend to crowd out a 

significant amount of other economic activity, and the 

indirect multipliers implied by those models tend to be 

less than one—meaning that such policies have less than 

a dollar-for-dollar impact on output. (Each such multiplier represents the estimated indirect effects on the 

nation’s output of a dollar’s worth of spending induced by 

a given policy.)

However, for several reasons, other analysts view this 

class of models as not well-suited to analyze the effects 

of countercyclical fiscal policy. In particular, this class of 

models does not typically incorporate involuntary unemployment: In such models, people can work as many 

hours as they choose at the wage rate determined by the 

market. In addition, this type of model is generally predicated on the assumption that people are fully rational and 

forward-looking, basing their current decisions on a full 

lifetime plan. The extreme version of the forward-looking 

assumption implies that people expect eventually to 

pay for any increased government spending or reduced 

revenues in the form of tax increases and that they incorporate those expected payments—even if beyond their 

own lifetimes—into their current spending plans. Thus, 

they are assumed to curtail their consumption when government spending rises because their lifetime income and 

that of their heirs has fallen by the amount of the eventual taxes. For the same reason, in such models, cash 

transfer payments and tax refunds have little or no effect 

on current consumption. People also are generally 

assumed to have full access to credit markets, so they 

can borrow to maintain consumption in the face of a 

temporary loss of income. Finally, in these models, monetary policy often follows the rule that increased output 

or inflation implies higher inflation-adjusted interest 

rates, an assumption that does not correspond to current 

conditions, in which interest rates are low and expected 

to remain so for some time. 

Recent research has shown that relaxing some of those 

modeling assumptions can result in much higher 

multipliers.5 CBO has incorporated the results of that 

research into its view of the effects of government policies. However, the research results appear to be too 

dependent on particular assumptions for CBO to rely on 

them heavily.

Extrapolations from Historical Data 

Another type of research uses historical data to directly 

project how government policies will affect the economy 

on the basis of how economic variables such as output 

and consumption have behaved in the past relative to 

government spending and revenues. However, estimates 

of economic effects from this research vary widely and are 

sensitive to the period and estimation strategy used.6

Many estimates of this sort suggest that crowding-out 

effects dominate in the case of government purchases so 

that the impact on output tends to be less than one-forone and tends to diminish over time. Some estimates, 

however, suggest multipliers higher than the range estimated by CBO. Multipliers for tax cuts are generally 

estimated to be higher than those for spending and to 

grow over time.7

One pitfall of this approach is that the direction of causation between policies and the economy is not always 

clear. For example, poor economic conditions can 

prompt the government to enact policies such as those in 

ARRA in an effort to boost economic activity. If weak 

economic performance led to such a policy, it would not 

be accurate to ascribe that performance to the policy, 

rather than vice versa. Likewise, if states and localities 

reduced purchases and laid employees off when their 

budgets deteriorated in a recession, it would not be accurate to blame the recession on the cuts in government 

spending. When causation runs in both directions in this 

way, the historical correlation between variables is not 

always the best guide for predicting the effects of a new 

policy proposal.

One strategy that has been applied to overcome that 

obstacle is to try to isolate the economic impact of specific policies that are arguably unrelated to economic 

conditions. One such policy is spending during wartime, 

which is driven by national security concerns rather than 

economic conditions.8

 However, the effects of additional 

federal spending during wars might not be indicative of 

the effects of increases in federal spending at other times. 

For example, during World War II, the rationing of many 

goods might have reduced the indirect effects of government spending on private consumption and investment.9
APPENDIX ESTIMATED IMPACT OF ARRA ON EMPLOYMENT AND ECONOMIC OUTPUT FROM JULY 2011 THROUGH SEPTEMBER 2011 13

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Another such policy is federal spending that is allocated 

across states based on criteria other than states’ economic 

conditions. Examples include federal outlays for the military and grants provided through ARRA.10 However, 

using the cross-state variation in federal spending to estimate the effects of that spending on state economies 

misses two potentially important effects: spillovers from 

recipient states to other states (such as shifts in resources 

from other states or increases in demand for output from 

other states) and any crowding out of investment attributable to nationwide increases in interest rates. 

More generally, most studies based on historical evidence 

estimate the effects of policies under average economic 

conditions. Under current conditions—in which interest 

rates are apt to be less affected than usual by expansionary 

government policies and in which there are large amounts 

of idle resources—the effects would probably be greater 

than they were, on average, in the past.11

A recent survey of studies based on historical evidence 

shows that estimates of fiscal multipliers range from 

-0.3 to 3.6, although most of the estimates fall between 

0.5 and 2.0. Several of those studies yield estimates that 

average between 0.5 and 1.0 over a long historical period. 

However, those studies do not specifically provide estimates for a period in which unemployment is high and 

interest rates are very low, as is true for the current 

period.

1. For critical reviews of approaches to measuring fiscal multipliers, 

see Valerie A. Ramey, “Can Government Purchases Stimulate 

the Economy?” Journal of Economic Literature, vol. 49, no. 3 

(September 2011), pp. 673–685; John B. Taylor, “An Empirical 

Analysis of the Revival of Fiscal Activism in the 2000s,” Journal of 

Economic Literature, vol. 49, no. 3 (September 2011), pp. 686–

702; and Jonathan A. Parker, “On Measuring the Effects of Fiscal 

Policy in Recessions,” Journal of Economic Literature, vol. 49, no. 3 

(September 2011), pp. 703–718. 

2. The FRB-US model differs from the other two forecasting models 

in that it explicitly incorporates the influence of expected future 

developments on current outcomes.

3. Stimulative policies such as ARRA can lead to higher interest rates 

in two ways. First, if they increase economic activity, they can 

prompt the Federal Reserve to raise interest rates to combat inflation. However, that effect has been smaller than usual during the 

past two years and is likely to remain so in the near term. The federal funds rate (the interest rate directly controlled by the Federal 

Reserve) has been near zero since late 2008 and is unlikely to be 

increased significantly until economic conditions improve substantially. Interest rates on short-term government securities, 

which tend to move closely with the federal funds rate, also are 

unlikely to rise for some time. Therefore, CBO estimates that 

expansionary government policies are likely to have less effect on 

interest rates now than under more normal conditions, which 

implies less crowding out. Second, stimulative policies can influence longer-term interest rates if they create expectations of higher 

inflation-adjusted interest rates or higher inflation in the future. In 

particular, policies that imply increases in future deficits could 

lead to higher current interest rates to the extent that people 

expect that the deficits will crowd out private investment and 

result in a lower capital stock (which tends to imply higher rates of 

return on capital and higher interest rates). However, the policies 

in ARRA are temporary and thus are unlikely by themselves to 

have a large impact on the interest rates that people expect beyond 

the next few years.

4. CBO assumes that as the recovery progresses, the Federal Reserve 

will see less need to provide monetary stimulus. Under CBO’s current macroeconomic forecast, that assumption implies that in the 

fourth quarter of 2013, the Federal Reserve will gradually begin to 

offset fiscal policy actions by raising interest rates (or engaging in 

other actions to tighten monetary policy) to reduce the risk in 

later years of excessive inflation.

5. An International Monetary Fund review of the estimates of seven 

models illustrates the importance of the assumed interest rate 

response in this type of model. See Günter Coenen and others, 

Effects of Fiscal Stimulus in Structural Models, Working Paper 10/

73 (Washington, D.C.: International Monetary Fund, March 

2010). For other examples of model estimates that incorporate a 

lower-than-usual response of interest rates to policy changes, see 

Michael Woodford, “Simple Analytics of the Government Expenditure Multiplier,” American Economic Journal: Macroeconomics, 

vol. 3, no. 1 (January 2011), pp. 1–35; Robert E. Hall, “By How 

Much Does GDP Rise If the Government Buys More Output?” 

Brookings Papers on Economic Activity, no. 2 (Fall 2009), pp. 183–

231; Lawrence Christiano, Martin Eichenbaum, and Sergio 

Rebelo, “When Is the Government Spending Multiplier Large?” 

Journal of Political Economy, vol. 119, no. 1 (February 2011), 

pp. 78–121; and Troy Davig and Eric M. Leeper, Monetary–Fiscal 

Policy Interactions and Fiscal Stimulus, Working Paper 15133 

(Cambridge, Mass.: National Bureau of Economic Research, July 

2009). For examples of models that include liquidity-constrained 

or “rule of thumb” agents, see Marco Ratto, Werner Roeger, and 

Jan in ‘t Veld, “QUEST III: An Estimated Open-Economy DSGE 

Model of the Euro Area with Fiscal and Monetary Policy,” 

Economic Modelling, vol. 26, no. 1 (January 2009), pp. 222–233; 

Lorenzo Forni, Libero Monteforte, and Luca Sessa, “The General 

Equilibrium Effects of Fiscal Policy: Estimates for the Euro Area,” 

Journal of Public Economics, vol. 93, no. 3–4 (April 2009), 

pp. 559–585; and Jordi Gali, J. David López-Salido, and Javier 

Vallés, “Understanding the Effects of Government Spending on 

Consumption,” Journal of the European Economic Association, 

vol. 5, no. 1 (March 2007), pp. 227–270. For model estimates in 

which government spending can contribute to future production, 

see Eric M. Leeper, Todd B. Walker, and Shu-Chun Susan Yang, 

Government Investment and Fiscal Stimulus in the Short and Long 

Runs, Working Paper 15153 (Cambridge, Mass.: National Bureau 

of Economic Research, July 2009). For a model that incorporates 

financial frictions in the form of a wedge between the interest rate 
14 ESTIMATED IMPACT OF ARRA ON EMPLOYMENT AND ECONOMIC OUTPUT FROM JULY 2011 THROUGH SEPTEMBER 2011

CBO

paid by businesses on loans and the rate received by households on 

savings, see Jesús Fernández-Villaverde, “Fiscal Policy in a Model 

with Financial Frictions,” American Economic Review, vol. 100, 

no. 2 (May 2010), pp. 35–40.

6. See Eric M. Leeper, “Monetary Science, Fiscal Alchemy” (paper 

presented at the Federal Reserve Bank of Kansas City symposium, 

“Macroeconomic Challenges: The Decade Ahead,” Jackson Hole, 

Wyo., August 27–28, 2010).

7. See Tommaso Monacelli, Roberto Perotti, and Antonella Trigari, 

Unemployment Fiscal Multipliers, Working Paper 15931 

(Cambridge, Mass: National Bureau of Economic Research, 

April 2010); Robert J. Barro and Charles J. Redlick, Macroeconomic Effects from Government Purchases and Taxes, Working 

Paper 15369 (Cambridge, Mass.: National Bureau of Economic 

Research, September 2009); Andrew Mountford and Harald 

Uhlig, “What Are the Effects of Fiscal Policy Shocks?” Journal of 

Applied Econometrics, vol. 24, no. 6 (September/October 2009), 

pp. 960–992; Roberto Perotti, “In Search of the Transmission 

Mechanism of Fiscal Policy,” NBER Macroeconomics Annual 2007, 

vol. 22, pp. 169–226; Olivier Blanchard and Roberto Perotti, “An 

Empirical Characterization of the Dynamic Effects of Changes in 

Government Spending and Taxes on Output,” Quarterly Journal 

of Economics, vol. 117, no. 4 (November 2002), pp. 1329–1368; 

and Valerie Ramey and Matthew Shapiro, “Costly Capital Reallocation and the Effects of Government Spending,” Carnegie–

Rochester Conference Series on Public Policy, vol. 48, no. 1 (June 

1998), pp. 145–194. In interpreting the results of this research, it 

is important to note that the definitions of “multiplier” may differ 

from study to study. In particular, reported multipliers are often 

“peak” multipliers—they represent the largest effect on output in 

any one quarter of a dollar change to policy that persists in a way 

that is consistent with historical behavior—rather than the cumulative effect of a one-time dollar’s worth of policy change, as CBO 

defines its multipliers. Similar research investigating the economic 

effects of fiscal consolidations—increases in taxes or decreases in 

government spending—may also inform analysis of the effects of 

fiscal stimulus. See International Monetary Fund, World Economic 

Outlook: Recovery, Risk, and Rebalancing (Washington, D.C., 

October 2010), Chapter 3; and Alberto Alesina and Silvia 

Ardagna, “Tales of Fiscal Adjustment,” Economic Policy, vol. 13, 

no. 27 (October 1998), pp. 487–545.

8. For an example of estimates of the effects of unanticipated military 

spending on the U.S. economy, see Valerie A. Ramey, “Identifying 

Government Spending Shocks: It’s All in the Timing,” Quarterly 

Journal of Economics, vol. 126, no. 1 (February 2011), pp. 1–50.

9. For an analysis based on specific policies that avoids this issue, see 

Christina D. Romer and David H. Romer, “The Macroeconomic 

Effects of Tax Changes: Estimates Based on a New Measure of 

Fiscal Shocks,” American Economic Review, vol. 100, no. 3 (June 

2010), pp. 763–801.

10. For an analysis of the economic effects of state-level variation in 

federal outlays for the military, see Emi Nakamura and Jón 

Steinsson, “Fiscal Stimulus in a Monetary Union: Evidence from 

U.S. Regions” (working paper, Columbia University, July 2011). 

That paper also contains an extensive discussion of why statebased estimates of fiscal multipliers are not very informative about 

the economic effects of fiscal policy at the federal level. For analyses using state-level variations in ARRA outlays, see Gabriel 

Chodorow-Reich and others, “Does State Fiscal Relief During 

Recessions Increase Employment? Evidence from the American 

Recovery and Reinvestment Act” (working paper, University of 

California, Berkeley, July 2011); Daniel J. Wilson, Fiscal Spending 

Multipliers: Evidence from the 2009 American Recovery and Reinvestment Act, Working Paper 2010-17 (San Francisco: Federal 

Reserve Bank of San Francisco, May 2011); Timothy Conley and 

Bill Dupor, “The American Recovery and Reinvestment Act: 

Public Sector Jobs Saved, Private Sector Jobs Forestalled” (working 

paper, Ohio State University, May 2011); and James Feyrer and 

Bruce Sacerdote, Did the Stimulus Stimulate? Real Time Estimates 

of the Effects of the American Recovery and Reinvestment Act, 

Working Paper 16759 (Cambridge, Mass.: National Bureau of 

Economic Research, February 2011). For other approaches to estimating fiscal multipliers using variations at the state and local 

level, see Juan Carlos Suárez Serrato and Philippe Wingender, 

“Estimating Local Fiscal Multipliers” (working paper, University 

of California, Berkley, March 2011); Daniel Shoag, “The Impact 

of Government Spending Shocks: Evidence on the Multiplier 

from State Pension Plan Returns” (working paper, Harvard University, 2010); and Jeffrey Clemens and Stephen Miran, “Fiscal 

Policy Multipliers on Sub-National Government Spending” 

(working paper, Stanford University, September 2011). For an 

analysis of ARRA’s effect on purchases of goods and services by 

federal, state, and local governments, see John F. Cogan and John 

B. Taylor, What the Government Purchases Multiplier Actually 

Multiplied in the 2009 Stimulus Package, Working Paper 16505 

(Cambridge, Mass.: National Bureau of Economic Research, 

October 2010). 

11. For an analysis using historical data that estimates that government spending has larger effects on output during recessions, see 

Alan J. Auerbach and Yuriy Gorodnichenko, Measuring the Output 

Responses to Fiscal Policy, Working Paper 16311 (Cambridge, 

Mass.: National Bureau of Economic Research, August 2010).