The Unprecedented Federal Fiscal Policy Response to the COVID-19 Pandemic and Its Impact on State Budgets

Abstract

In response to the COVID-19 pandemic, within a year’s time span, the federal government enacted unprecedented fiscal response bills totaling over $5 trillion. This response amount equates to about 25% of U.S. GDP in 2020. These massive allocations funded direct pandemic public health responses, along with vast fiscal support for households, firms, and state and local governments. This enormous response supported state and local government budgets both indirectly and directly, resulting in a marked budgetary shift from anticipated shortfalls to significant revenue growth and inflationary budget pressures.