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

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  • Jeffrey Clemens
  • Philip G. Hoxie
  • Stan Veuger

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 September 2021, we estimate that the federal government allocated $855,000 for each state or local government job-year preserved. Our baseline confidence interval allows us to rule out estimates of less than $433,000. 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 impacts we estimate in comparison with previous research.

Suggested Citation

  • Jeffrey Clemens & Philip G. Hoxie & Stan Veuger, 2022. "Was Pandemic Fiscal Relief Effective Fiscal Stimulus? Evidence from Aid to State and Local Governments," NBER Working Papers 30168, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30168
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    Cited by:

    1. Hershbein, Brad & Stuart, Bryan A., 2023. "Place-based consequences of person-based transfers: Evidence from recessions," Journal of Public Economics, Elsevier, vol. 224(C).
    2. Clemens, Jeffrey & Hoxie, Philip & Kearns, John & Veuger, Stan, 2023. "How did federal aid to states and localities affect testing and vaccine delivery?," Journal of Public Economics, Elsevier, vol. 225(C).

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    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H1 - Public Economics - - Structure and Scope of Government
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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