This is from the St. Louis Fed's On the Economy blog:
The Effects of Stimulus Spending on Surrounding Areas: Government spending on goods and services from the American Recovery and Reinvestment Act of 2009 (ARRA) reached around $350 billion.1 Some of this spending impacted not just the areas receiving the money, but surrounding areas as well, thanks to commuters. ...
Dupor and McCrory found substantial direct and spillover effects within regions interconnected by commuter flows. As noted in the article, stimulus spending in one county increased employment and wage payments in places two to three counties away, as long as the areas were sufficiently connected, as measured by commuting patterns. They found that:
- One dollar of ARRA spending in a subregion increased wage payments by $0.64 in that subregion.
- It increased wage payments in the neighboring subregion by $0.50.
In his article, Dupor wrote: “Thus, combining both the direct and spillover effects, there is a greater than one-for-one increase in the wage bill with respect to an increase in the stimulus spending.”
Dupor and McCrory also examined changes in the employment level to gauge economic activity. They found that, following the first two years after ARRA’s enactment, $1 million of stimulus in one part of a local labor market increased employment by 10.3 persons and increased employment in the rest of the local labor market by 8.5 persons.4
Dupor concluded in his article: “Besides providing evidence in favor of a government spending multiplier, our results should provide caution to other researchers, as well as to policymakers. Failing to take into account positive spillovers could lead policymakers to underestimate the total social benefit of government fiscal intervention.”