Working Paper: NBER ID: w30168
Authors: 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.
Keywords: COVID-19; fiscal stimulus; state and local governments; employment; economic impact
JEL Codes: E6; H1; H7
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| congressional representation (D72) | federal aid (H77) |
| federal aid (H77) | state/local government employment (H70) |
| federal aid (H77) | aggregate income/output (E10) |
| federal aid (H77) | private-sector employment (J45) |
| federal aid (H77) | real wages (J31) |
| federal aid (H77) | total payroll (J39) |
| federal aid (H77) | economic activity (E20) |