Previous article FreeForum: The Early Effects of the US Fiscal Policy Responses to the COVID-19 PandemicIntroductionLaura KawanoLaura KawanoForum Editor Search for more articles by this author PDFPDF PLUSFull Text Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmailPrint SectionsMoreIntroductionIn the first quarter of 2020, the world’s economies shuttered as it quickly became clear that we were facing a global health crisis. Vast sectors of the economy shut down and unemployment skyrocketed. In response, governments took swift and massive actions to mitigate the health, economic, and financial impacts of the COVID-19 pandemic. In the United States, the fiscal policy response included three rounds of stimulus payments, a drastic expansion of the unemployment insurance (UI) system, and the creation of the Paycheck Protection Program (PPP) and Employee Retention Credit (ERC). This Forum offers four papers that evaluate the early effects of these pandemic policy responses.The first paper, by David Splinter, examines the stimulus payments, which provided three rounds of cash infusions to families throughout the COVID-19 pandemic. These payments were a form of advance tax credits. To quickly provide aid, initial disbursements were based on previous years’ tax return information, but final tax credit amounts were based on current year circumstances. Because of this timing, there can be either underpayments, leading to future true-ups, or overpayments, which often result in safe harbor protections. David documents the importance of true-ups and safe harbors in understanding the budgetary costs to the government of providing stimulus payments in this way. He finds that, while true-ups improve the distributional targeting of stimulus checks and safe harbors may enhance aggregate demand during times of economic downturn, both are quite costly.Second, Eliza Forsythe evaluates the performance of the UI system during the first year of the pandemic, when policy both increased the generosity of the standard UI system and expanded UI eligibility through the Pandemic Unemployment Assistance (PUA) program. She constructs an algorithm to determine UI eligibility for both programs using survey data. Combined with data on actual UI claims, she estimates that the UI system performed well at reaching the eligible population with near complete take-up of standard UI and 78 percent of the PUA-eligible receiving benefits.The final two papers examine the programs that were designed to provide aid to small businesses and encourage employee retention. In the third paper, Michael Dalton matches PPP loans to administrative wage data to estimate the impacts of the program on employment, wages, and establishment closures within the first 15 months of the program. He finds significant increases in employment and wages and declines in closures that persist over time. There is also substantial heterogeneity in program effectiveness by firm size. The larger effects observed among the smallest firms, along with the ability to observe firm closures, helps to explain the differences in estimated effects with earlier studies.Finally, Lucas Goodman examines the ERC, a credit available to employers that were subject to a government order to curtail business activity or experienced a large drop in gross receipts during the pandemic. Using payroll tax filings in 2020 and 2021, Lucas finds low take-up rates of this smaller program that was part of the overall fiscal policy response. Even in cases where eligibility was expected to be near universal — such as the restaurant industry in cities with indoor dining bans — take-up rates were only 30 percent. Of the credits that had been dispersed, much of these were in the form of tax refunds, rather than advance payments or reductions in employment tax deposits.The unprecedented challenges that governments faced at the onset of the COVID-19 pandemic led to a variety of innovative fiscal policy responses to mitigate the economic disruptions. These policies require ongoing evaluations to draw lessons on what worked, what did not, and what might work in the future. These assessments will — and should — continue for years to come. This Forum provides a look at the early effects of these policies in the United States. Previous article DetailsFiguresReferencesCited by National Tax Journal Ahead of Print Published for: The National Tax Association Article DOIhttps://doi.org/10.1086/724592 Views: 25Total views on this site HistoryPublished online May 04, 2023 © 2023 National Tax Association. All rights reserved.PDF download Crossref reports no articles citing this article.
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