The document discusses the American Recovery and Reinvestment Act (ARRA) of 2009, which provided $48 billion in stimulus funding for transportation projects. It explores the difficulties in estimating the economic impacts of such a large stimulus program. Research found that state highway spending increased by 50 cents to 75 cents for each $1 of ARRA highway grants received by a state. While precisely measuring impacts is challenging, analysis of multiple data points suggests that without ARRA funding, national highway spending would have declined 20% from 2008 to 2011.

1. Running head: STIMULUS IMPACTS 1
STIMULUS IMPACTS
Robin J. Chao
TLMT 502, B001, Fall 2015
American Military University
Dr. Alister McLeod
November 1, 2015

2. STIMULUS IMPACTS 2
Table of Contents
1. Abstract
2. Issues and People’s Lives
3. States react to policy
3. Conclusion

3. STIMULUS IMPACTS 3
Abstract
The Great Recession of 2008 caused the federal government to develop and pass the
American Recovery and Reinvestment Act (ARRA) of 2009. ARRA rapidly provided
funding to all major government agencies, including the Department of Transportation.
The money was welcomed by cash-strapped states that quickly launched projects to
restore their economies. This paper explored ARRA inception, highlights difficulties in
estimating its impacts, and reported some conclusions on data from the first three years
following its passage.
Keywords: ARRA, Transportation, grants, reverse causation

4. STIMULUS IMPACTS 4
The American Recovery and Reinvestment Act (ARRA) of 2009 sought to pull
the United States (and arguably help its trading partner countries) out of the Great
Recession of 2008 (Leduc and Wilson, 2014 and 2012) (Feyrer and Sacerdote, 2011).
ARRA directed $48 billion to fund transportation with over half that value intended for
road projects. The total value of the Stimulus Plan was estimated at $825 billion spread
over ten years. Two-thirds of the money would come from increased federal spending.
Issues and People’s Lives
The American Society of Civil Engineers did not provide a positive report of road
conditions with its 2013 “D” rating (Leduc and Wilson, 2014). The poor quality earned
the United States the number 18 spot in the world rankings according to the World
Economic Forum in the same year.
Paying for this stimulus plan poised many questions in the minds of
policymakers, business people, and ordinary citizens. As gas prices soared in 2008, the
household incomes were taking a huge hit as well as the commercial enterprises trying to
stay in business. Would ARRA be worth the price tag? How long would it take to see
any economic recovery? Why is the country and world in such bad shape?
Analyzing the effects of ARRA was problematic to the Congressional Budget
Office. Director Elmendorf blogged, “…isolating the effects would require knowing
what path the economy would have taken in the absence of the law [ARRA].” (Feyrer
and Sacerdote, 2011).
Furthermore, reverse causation or “chicken and egg” theory make it difficult to
definitively assess the benefits of ARRA. Leduc and Wilson (2012) showed how past
researchers addressed reverse causation by studying the issue from all angles. Some

5. STIMULUS IMPACTS 5
looked at military spending to estimate the effect of changes in government spending on
economic activity. Others operated on their belief that political delays prevented
quarterly fiscal policy changes much less annually.
Many “multipliers” or the dollar change in economic activity caused by a $1
change in spending were discovered by researchers. Leduc and Wilson (2012) wanted to
determine ARRA’s short- or medium-run effectiveness.
Leduc and Wilson (2012) found a short-run multiplier of 1.7 and long-run
multipliers as high as 4.5. Part of the difficulty in estimating economic impact is the
duration of infrastructure projects. The time horizon can easily span a decade or more.
The timing of when funds become available and when they can be obligated will
determine when economic changes occur. Sometimes lags between policy changes and
monetary outlays cause instability in the economy. This instability has caused financial
paralysis as nobody is willing to make major movements while public funds are in limbo.
States react to policy
The current stimulus plan is not immune from the historical trends of
governments pushing money to the hardest hit areas in their economies regardless of their
contribution to the overall society. ARRA used pre-existing programs to channel money
to states in order to minimize gridlock and speed-up disbursement. One concern with this
approach was more highway grants would be awarded to states that would cut spending
so much that would cause any even worse situation.
Leduc and Wilson (2014) used the “difference-in-differences” approach to
analyze state highway spending. The pair looked at how each state changed its per capita
spending from before 2008 to after 2009 through 2011. They assumed population

6. STIMULUS IMPACTS 6
density, climate, or political preferences determined the level of highway spending in
both pre-2008 and post-2008, but would not affect the before/after difference in the
state’s highway spending.
Additionally, Leduc and Wilson wanted to know if states that received more
ARRA grants per capita showed a bigger change in highway spending per capita.
The results proved the ARRA grants did not correlate to the states’ economic
conditions. The funds were partly distributed based on highway lane-miles which have
changed little since the initial planning of the Interstate Highway System in the 1940s.
Road spending increased 50 cents in 2009 and about 75 cents in 2010 and 2011 for each
dollar states received in ARRA highway grants (Leduc and Wilson, 2014).
Conclusion
The country has experienced the ramifications of the first half of American
Recovery and Reinvestment Act of 2009. National unemployment was below six percent
in late 2014 (Stater and Wenger, 2015). Researchers can point out their discoveries from
the first three to four years since its inception. Leduc and Wilson (2014) estimate
national spending on highways would have declined 20 percent between 2008 and 2011
without ARRA funding. Determining economic impacts with any precision is a difficult
task because various groups look at different factors to decide success or failure.
Transportation impacts are hard to measure, but looking at the data from several angles
can make the picture a little clearer and help guide future actions.

7. STIMULUS IMPACTS 7
References
Feyrer, J., & Sacerdote, B. (2011). Did the stimulus stimulate? real time estimates of the
effects of the american recovery and reinvestment act (No. w16759). National
Bureau of Economic Research.
Leduc, S., & Wilson, D. J. (2014). Fueling road spending with federal stimulus. FRBSF
Economic Letter, 2014, 25.
Leduc, S., & Wilson, D. J. (2012). Should transportation spending be included in a
stimulus program? a review of the literature. Federal Reserve Bank of San
Francisco Working Paper, 15.
Stater, M., & Wenger, J. B. (2015). The Immediate Hardship of Unemployment:
Evidence from the US Unemployment Insurance System. Eastern Economic
Journal.