The American Recovery and Reinvestment Act of 2009 (ARRA) is an important policy response to the current deep recession. State and local governments have suffered significant declines in their revenues and, for states in particular, a significant increase in the demand for services, particularly...

Using a sample of the 48 mainland U.S. states for the period 1973-2009, we study the ability of U.S. states to expand their own state employment through the use of state deficit policies. The analysis allows for the facts that U.S. states are part of a wider monetary and economic union with free...