Recession Remedies Home
Abstract
The author looks at the nearly $1 trillion that the federal government provided to state and local governments. The federal aid was more than sufficient to offset the declines in state and local revenues, which were not nearly as severe as initially feared, in part because the relationship between economic conditions and state and local revenues during the pandemic differed significantly from historical experience. Nevertheless, state and local government employment declined sharply and the decline has been persistent. She concludes that much of the decline in employment reflected the unique nature of the pandemic rather than tight budgetary conditions. However, she also argues that had state and local policymakers known about the full extent of forthcoming aid, had the aid been more flexible, and had it been provided directly to more local governments, the layoffs likely would have been somewhat smaller. Finally, she cautions against using the unique pandemic experience as a reason to discard the lesson of the Great Recession that aid to state and local governments is critical to ensure.
