Stuck in Neutral? Federalism, Policy Instruments, and Counter-Cyclical Responses to COVID-19 in the United States

Abstract

Federalism plays a foundational role in structuring public expectations about how the United States will respond to the COVID-19 pandemic, as both an unprecedented public-health crisis and an economic recession. As in prior crises, state governments are expected to be primary sites of governing authority, especially when it comes to immediate public-health needs, while it is assumed that the federal government will supply critical counter-cyclical measures to stabilize the economy and make up for major revenue shortfalls in the states. Yet there are reasons to believe that these expectations will not be fulfilled, especially when it comes to the critical juncture of the COVID-19 pandemic. Though the federal government has the capacity to engage in counter-cyclical spending to stabilize the economy, existing policy instruments vary in the extent to which they leverage that capacity. This leverage, we argue, depends on how decentralized policy arrangements affect the implementation of both discretionary emergency policies as well as automatic stabilization programs such as Unemployment Insurance, Medicaid, and the Supplemental Nutrition Assistance Program. Evidence on the US response to COVID-19 to date suggests the need for major revisions in the architecture of intergovernmental fiscal policy.