We present results from a randomized evaluation of a teacher performance pay program implemented across a large representative sample of government-run rural primary schools in the Indian state of Andhra Pradesh. At the end of 2 years of the program, students in incentive schools performed significantly better than those in control schools by 0.27 and 0.17 standard deviations in math and language tests, respectively. We find no evidence of any adverse consequences of the program. The program was highly cost effective, and incentive schools performed significantly better than other randomly chosen schools that received additional schooling inputs of a similar value.
We argue that the government-spending multiplier can be much larger than one when the zero lower bound on the nominal interest rate binds. The larger the fraction of government spending that occurs while the nominal interest rate is zero, the larger the value of the multiplier. After providing intuition for these results, we investigate the size of the multiplier in a dynamic, stochastic, general equilibrium model. In this model the multiplier effect is substantially larger than one when the zero bound binds. Our model is consistent with the behavior of key macro aggregates during the recent financial crisis．
