The Fiscal Cost of COVID-19: Evidence from the States

31 Pages Posted: 15 Jun 2020 Last revised: 20 Jul 2020

See all articles by Christos Makridis

Christos Makridis

Stanford University; Institute for the Future (IFF), Department of Digital Innovation, School of Business, University of Nicosia; Arizona State University (ASU); Department of Veterans Affairs (VA)

Robert McNab

Department of Economics

Date Written: June 22, 2020

Abstract

How has the COVID-19 pandemic affected state budgets? Using a quarterly panel of states between 1994 and 2019, we estimate how changes in employment affect tax revenues. We find that a one percentage point (pp) rise in employment is associated with a 1.56pp rise in total tax revenue, which is concentrated among sales taxes (a 1.19pp increase), individual income taxes (a 1.63pp increase), and corporate income taxes (a 4.13pp increase). These results are robust to a wide array of controls, such as state composition and housing price growth, and instrumental variable specifications. After estimating state-specific elasticities, and forecasting counterfactual employment within states using the most recent data, we find that the average state will experience a 6.7% (11.1%) decline in their tax revenues under an optimistic (pessimistic) scenario, culminating in $79.9 ($125.2) billion in total.

Keywords: Budgets, COVID-19, Employment, State and Local Tax Policy

JEL Classification: E62, H24, E71, E72, J21

Suggested Citation

Makridis, Christos and McNab, Robert, The Fiscal Cost of COVID-19: Evidence from the States (June 22, 2020). Available at SSRN: https://ssrn.com/abstract=3626497 or http://dx.doi.org/10.2139/ssrn.3626497

Christos Makridis (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

Institute for the Future (IFF), Department of Digital Innovation, School of Business, University of Nicosia ( email )

Nicosia, 2417
Cyprus

Arizona State University (ASU) ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

Department of Veterans Affairs (VA) ( email )

810 Vermont Avenue NW
Washington, DC 20420
United States

Robert McNab

Department of Economics ( email )

Norfolk, VA 23529-0222
United States
757-683-3153 (Phone)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
736
Abstract Views
4,490
Rank
63,957
PlumX Metrics