The Political Economy of Discretionary Spending: Evidence from the American Recovery and Reinvestment Act

We study in this paper the spatial allocation of expenditures in the American Recovery and Reinvestment Act (ARRA), one of the largest discretionary funding bills in the history of the United States. Contrary to both evidence from previous fiscal stimulus programs and standard theories of legislative politics, we do not find evidence of substantial political targeting. The districts of party leaders did not receive more funds than those of rank-and-file legislators, nor did the districts of pivotal voters in the Senate or swing voters in the House receive more money. While Democratic districts overall received more per resident than Republican districts, this differential nearly disappears when we consider award per worker in each district or when we control for district poverty rate. Democratic states did receive modestly greater funds, but this is largely due to higher levels of funding going to places with more generous state welfare programs. At the same time, we find no relationship between the amount awarded and measures of the severity of the downturn in the local economy, while we do find more funds flowing to districts with higher levels of economic activity and greater incidence of poverty. The results are consistent with the discretionary component of ARRA being allocated through funding formulas or based on project characteristics other than countercyclical efficacy or political expediency, which stands in contrast to evidence from fiscal stimulus in the New Deal. One explanation suggests that over the past century, legislative norms have reduced the scope of discretion—with attendant benefits and costs.