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The US economic recovery from the pandemic been surprisingly swift, with output increasing, consumer spending recovering, and unemployment falling faster than expected. State and local governments’ tax revenues recovered rapidly as well, despite the dire predictions of many governors.
But what matters from the perspective of the overall national recovery is state and local government employment, not tax revenue. That hasn’t recovered. And that’s one of several reasons those governments need additional federal assistance.
When Covid-19 struck and states began locking down their economies, many economists, including me, were worried about the possibility of a “second Great Depression” that would have crippled state and local government finances.