Political Connections, Allocation of Stimulus Spending, and the Jobs Multiplier

Using American Recovery and Reinvestment Act (ARRA) data, we show that firms lever their political connections to win stimulus grants public expenditure channeled through politically connected hinders job creation. We build a unique database links information on campaign contributions, state legislative elections, firm characteristics, ARRA grant allocation. Using exogenous variation in based ex-post close elections held before ARRA, causally are 38 percent more likely secure grant. Based an instrumental variable approach, also establish one standard deviation increase the share of spending lowers number jobs created per $1 million spent by 7.1 jobs. Therefore, impact fiscal is not only determined how much spent, but allocated across recipients.