DP13304 Regional Transfer Multipliers

Author(s): Raphael Corbi, Elias Papaioannou, Paolo Surico
Publication Date: November 2018
Keyword(s): 'fuzzy' RD, employment, government spending, Natural Experiment, wages
JEL(s): C26, E62, H72
Programme Areas: International Macroeconomics and Finance, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13304

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.