Working Paper: CEPR ID: DP13304
Authors: Raphael Corbi; Elias Papaioannou; Paolo Surico
Abstract: A series of discontinuities in the allocation mechanism of federal transfers to municipal governments in Brazil allow us to identify the causal effect of public spending on local labor markets, using a ‘fuzzy’ Regression Discontinuity Design (RDD). Our estimates imply a cost per job of about 8,000 US dollars per year and a local income multiplier around two. The effect comes mostly from employment in services and is more pronounced among less financially developed municipalities.
Keywords: natural experiment; fuzzy RD; government spending; employment; wages
JEL Codes: E62; H72; C26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Changes in federal transfers (H77) | Changes in local government expenditure (H79) |
| Changes in local government expenditure (H79) | Formal sector employment (J46) |
| Changes in federal transfers (H77) | Formal sector employment (J46) |
| Changes in local government expenditure (H79) | Wages (J31) |
| Changes in federal transfers (H77) | Wages (J31) |
| Changes in local government expenditure (H79) | Local income (H79) |
| Changes in federal transfers (H77) | Local income (H79) |