Local fiscal policy shocks propagate between labor markets through the trade in intermediate goods used in final production. Through this channel, each $1 of local aid from the 2009 Recovery Act increased output by $1.33 in the rest of the country over two years, in addition to its local state-level effect of $1.46. Combining both the local and spillover effects, absent other offsetting forces, the implied aggregate multiplier from the Recovery Act was approximately 2.8. A sectoral decomposition of the direct and spillover effects is consistent with the spillover effects being mediated through the trade in intermediate goods.

In response to the record-breaking COVID19 recession, many governments have adopted unprecedented fiscal stimuli. While countercyclical fiscal policy is effective in fighting conventional recessions, little is known about the effectiveness of fiscal policy in the current environment with widespread shelter-in-place ("lockdown") policies and the associated considerable limits on economic activity. Using detailed regional variation in economic conditions, lockdown policies, and U.S. government spending, we document that the effects of government spending were stronger during the peak of the pandemic recession, but only in cities that were not subject to strong stay-at-home orders. We examine mechanisms that can account for our evidence and place our findings in the context of other recent evidence from microdata.

Epidemiological models projected that, without effective mitigation strategies, upwards of 2 million Americans were at risk of death from the COVID-19 pandemic. Heeding the warning, in mid-March 2020, state and local officials in the United States began issuing Stay-at-Home (SAH) orders, instructing people to remain at home except to do essential tasks or to do work deemed essential. By April 4th, 2020, nearly 95% of the U.S. population was under such orders. Over the same three week period, initial claims for unemployment spiked to unprecedented levels. In this paper, we use the high-frequency, decentralized implementation of SAH orders, along with high-frequency unemployment insurance (UI) claims, to disentangle the relative effect of SAH orders from the general economic disruption wrought by the pandemic that affected all regions similarly. We find that, all else equal, each week of Stay-at-Home exposure increased a state’s weekly initial UI claims by 1.9% of its employment level relative to other states. Ignoring cross-regional spillovers, a back-of-the-envelope calculation implies that, of the 17 million UI claims made between March 14 and April 4, only 4 million were attributable to the Stay-at-Home orders. This evidence suggests that the direct effect of SAH orders accounted for a substantial, but minority share, of the overall initial rise in unemployment claims. We present a stylized currency union model to provide conditions under which this estimate represents an upper or lower bound for aggregate employment losses attributable to SAH orders.