Does Fiscal Policy Reduce Unemployment? Evidence from Pork-Barrel Spending

Andrew Leigh Christine Neill Abstract Studies of the effect of government spending on unemployment are potentially confounded by reverse causality. To address the endogeneity problem, we exploit variation in a pork- barrel road-building program, and find that higher government expenditure on road-building substantially reduces local unemployment. JEL Codes: E24, E62, H30, H54, Keywords: fiscal policy, unemployment, partisanship Introduction There remains considerable disagreement among economists as to the impact of fiscal…