State and Local Government Employment in the COVID-19 Crisis
(with Daniel Green)

Journal of Public Economics, 2021, 193

First version: July   2020
This version:  October 2020

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Abstract:

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.  








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Blog post for HBS Working Knowledge
Q&A  post for Carlson Fall 2020 Discovery magazine


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