Was Pandemic Fiscal Relief Effective Fiscal Stimulus? Evidence from Aid to State and Local Governments

Stan Veuger, Philip Hoxie and Jeffrey Clemens
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Jeffrey Clemens: American Enterprise Institute

AEI Economics Working Papers from American Enterprise Institute

Abstract: We use an instrumental-variables estimator reliant on variation in congressional representation to analyze the effects of federal aid to state and local governments across all four major pieces of COVID-19 response legislation. Through December 2022, we estimate that the federal government allocated $603,000 for each state or local government job-year preserved. Our baseline confidence interval allows us to rule out estimates of less than $220,400. Our estimates of effects on aggregate income and output are centered on zero and imply modest if any spillover effects onto the broader economy. We discuss aspects of the pandemic context, which include the surprising resilience of state and local tax revenues as well as of broader macroeconomic conditions, that may underlie the small employment and stimulative effects we estimate in comparison with previous research.

Keywords: Fiscal Policy; Fiscal Stimulus; Political Economy; State and Local Budgets (search for similar items in EconPapers)
JEL-codes: A (search for similar items in EconPapers)
Date: 2022-06
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