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Lessons from COVID-19 Aid to State and Local Governments for the Design of Federal Automatic Stabilizers

In this paper Clemens and Veuger analyze pandemic-era federal fiscal assistance to state and local governments and draw lessons for the design of stabilization policy. They start by explaining why the federal government plays a key role in stabilizing state and local government budgets across the business cycle, before describing the shape this role currently ...

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Lessons from COVID-19 Aid to State and Local Governments for the Design of Federal Automatic Stabilizers

Figure 1: Income and Expenditures over the Pandemic

Figure 2: Income and Expenditures over the Great Recession

Figure 3: Average funds per capita versus Congressional Representation and Congressional Democratic party share

Figure 4: Estimated shortfall from 2020 (Q2) – 2022 (Q2)

Figure 5: Indexed tax base shortfalls and surpluses based on simple linear forecasts