TY - JOUR
T1 - State and local government employment in the COVID-19 crisis
AU - Green, Daniel
AU - Loualiche, Erik
N1 - Publisher Copyright:
© 2020 Elsevier B.V.
PY - 2021/1/1
Y1 - 2021/1/1
N2 - 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 that without this funding state and local governments would have laid off an additional 401,000 workers in April 2020, 40 percent more than realized. State rainy day fund balances limit the sensitivity of employment to these revenue shocks, revealing that balanced budget requirements for state and local governments increase the procyclicality of public service provision.
AB - 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 that without this funding state and local governments would have laid off an additional 401,000 workers in April 2020, 40 percent more than realized. State rainy day fund balances limit the sensitivity of employment to these revenue shocks, revealing that balanced budget requirements for state and local governments increase the procyclicality of public service provision.
KW - Balanced budget requirements
KW - Public finance
KW - Public policy
KW - State and local government
UR - http://www.scopus.com/inward/record.url?scp=85096848756&partnerID=8YFLogxK
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U2 - 10.1016/j.jpubeco.2020.104321
DO - 10.1016/j.jpubeco.2020.104321
M3 - Article
AN - SCOPUS:85096848756
SN - 0047-2727
VL - 193
JO - Journal of Public Economics
JF - Journal of Public Economics
M1 - 104321
ER -