The multiplier he gets is very large - 2.12 - and he suggests it's robust to a variety of specifications. This is quite surprising. For one thing, the multiplier itself seems too big even if we had a well identified estimate. But it's particularly big for interstate estimates, which ought to bias multiplier estimates downward for reasons I've discussed on here before. Shoag talks about certain frictions as playing a role in the result.
UPDATE: See Andrew's comment below.
The bolded sentence confuses me. It would have thought strong pension fund performance would be associated with relative economic position. I don't know all that much about state pensions, but it would certainly seem to explain the large multiplier (what we usually think of as a negative endogeneity bias for fiscal multipliers is - because of the choice of instrument here - a positive bias).
So I'm skeptical of this paper, but my disclaimer is I've only read the first section and I'm always a grump when it comes to state-level analyses of fiscal multipliers.
Does anyone know of any other interesting multiplier instrument papers?
UPDATE 2: Also, I meant to mention a recent paper by Arnold Kling in the new issue of Critical Review on all this called "Macroeconometrics: the Science of Hubris". He does a good job clearly explaining the issues I've been talking about, but he's a lot more skeptical and nihilistic than I am about it all. He's like the Ed Leamer of the macro side of things, and while I share his understanding of the issues I don't quite share his pessimism about what we've come up with.