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Fiscal Federalism and Economic Crises in the United States: Lessons from the COVID-19 Pandemic and Great Recession

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  • Mariely López-Santana
  • Philip Rocco

Abstract

The architecture of fiscal federalism in the United States represents an obstacle for prompt and comprehensive policy responses to economic crises, especially by subnational levels of government. As both a public health and economic crisis, the COVID-19 pandemic has put unique fiscal pressures on subnational governments. This article reviews the pandemic’s fiscal effects on these governments, as well as the federal government’s response. By comparing the response to the COVID-19 crisis during the Trump administration with the response to the Great Recession during the Obama administration, we show that while the speed and magnitude of federal aid was unprecedented in 2020, it was nevertheless conditional in nature and beset by familiar political and institutional obstacles. Despite major fiscal pressures, state revenues rebounded earlier than expected, in part due to the relaxation of public health measures and the collection of taxes from online transactions; yet, state resources remained strained throughout the year, especially in states reliant on the hospitality and the oil sectors. And while local property taxes were buoyed by a surging housing market, cities and counties were confronted with declining revenue from other sources and intense emergency spending needs. Thus, despite unprecedented levels of federal support for state and local governments, the legacies of “fend for yourself” federalism live on.

Suggested Citation

  • Mariely López-Santana & Philip Rocco, 2021. "Fiscal Federalism and Economic Crises in the United States: Lessons from the COVID-19 Pandemic and Great Recession," Publius: The Journal of Federalism, CSF Associates Inc., vol. 51(3), pages 365-395.
  • Handle: RePEc:oup:publus:v:51:y:2021:i:3:p:365-395.
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    File URL: http://hdl.handle.net/10.1093/publius/pjab015
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    Cited by:

    1. Johnna Montgomerie, 2023. "COVID Keynesianism: locating inequality in the Anglo-American crisis response," Cambridge Journal of Regions, Economy and Society, Cambridge Political Economy Society, vol. 16(1), pages 211-223.
    2. Emily M. Farris & Mirya R. Holman, 2023. "Sheriffs, right‐wing extremism, and the limits of U.S. federalism during a crisis," Social Science Quarterly, Southwestern Social Science Association, vol. 104(2), pages 59-68, March.
    3. Breide, Lukas & Budzinski, Oliver & Grebel, Thomas & Mendelsohn, Juliane, 2023. "Forerunners vs. latecomers: Institutional competition in the German federalism during the COVID crisis," Ilmenau Economics Discussion Papers 182, Ilmenau University of Technology, Institute of Economics.
    4. Evgeny N. Timushev & Vita A. Yagovkina, 2023. "Reserve Funds in Russian Regions: Factors of Formation and Efficiency Assessment," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 5, pages 61-78, October.
    5. Mildred E Warner & Paige M Kelly & Xue Zhang, 2023. "Challenging austerity under the COVID-19 state," Cambridge Journal of Regions, Economy and Society, Cambridge Political Economy Society, vol. 16(1), pages 197-209.

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