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Abstract

We estimate the employment effect of a large fiscal stimulus in Spain (Plan E), in which the national government transferred funds to municipalities to carry out local investment projects. Using a difference-indifference approach by exploiting variation in the timing of the execution of projects across municipalities, we find that 100,000 euros of stimulus reduced unemployment by 0.62 jobs-years. We also present evidence on the transmission mechanism, finding that the effect was: i) initially concentrated in the construction and industrial sectors, but later spilled over to the broader economy, ii) larger for males than females, and iii) larger when the shock represented a higher share of the budget. Our estimate of the multiplier falls in the lower range of previous work.