Resumen.

Bibliografía.

Local governments across the United States have had a prominent role in financing the pandemic response during the ongoing COVID-19 outbreak and economic recession. Yet, such governments are increasingly facing budgetary strain as sources of tax revenue evaporate. If the financial burden on such governments can be eased, they may better address those aspects of pandemic response to which they are uniquely suited, such as coordinating resources and re-allocating space within their communities. This paper investigates the role of Medicaid, traditionally the default insurer of the unemployed, as a stabilizing force on local government budgets. Using panel data from county governments during the Great Recession (2006–2012), we estimate the effect of state Medicaid generosity on public finances. We find that Medicaid mitigates the effect of unemployment shocks on county government expenditures, specifically safety-net programs and debt. We apply these point estimates to extrapolate predictions based on contemporary state Medicaid generosity and local unemployment rates. In this way, we show that Medicaid continues to mitigate the financial strain on local government during the COVID-19 pandemic.