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  • January 2021
  • Article
  • Journal of Public Economics

State and Local Government Employment in the COVID-19 Crisis

By: Daniel Green and Erik Loualiche
  • Format:Print
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Abstract

Local governments are facing large losses in revenues and increased expenditures because of the COVID-19 crisis. We document a causal relationship between fiscal pressures induced by COVID-19 and the layoffs of state and local government workers. States that depend more on sales tax as a source of revenue laid off significantly more workers than other states. The CARES Act's provision of $150 billion in aid to state and local governments reduced the fiscal pressures they faced. Exploiting a kink in the formula for allocation of funding across states, we estimate a state and local government employment multiplier for federal aid—each dollar of federal aid was used by states to support 31 cents of payrolls. State rainy day fund balances limit the sensitivity of employment to both revenue shocks, revealing that balanced budget requirements for state and local governments increase the procyclicality of public service provision.

Keywords

Local Government; Municipal Finance; Public Finance; Fiscal Capacity; Fiscal Policy; Governance; Local Range; Health Pandemics; Employment; Finance; Policy; Public Sector

Citation

Green, Daniel, and Erik Loualiche. "State and Local Government Employment in the COVID-19 Crisis." Art. 104321. Journal of Public Economics 193 (January 2021).
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About The Author

Daniel W. Green

Finance
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