How Much is Fiscal Consolidation Offset by Increases in Social Safety Net Spending? Evidence from the 2011 Budget Control Act

Abstract This paper investigates how much reductions in federal procurement spending due to the Budget Control Act of 2011 are offset or “crowded out” by increases in spending on social safety net programs. We use a shift-share instrumental variables approach and find that approximately 7 % of the cuts in federal spending are offset by social safety net transfers. Specifically, for every dollar reduction in federal procurement, there is an increase of $0.06 in unemployment insurance payments and less than $0.01 in SNAP benefits. Furthermore, our analysis reveals that these effects vary significantly with the type of spending that is cut. These findings underscore the broader implications of fiscal adjustments, highlighting the potential consequences for state policies and employer costs.