Implications of the coronavirus on sales tax revenue and local government fiscal health

Abstract

The outbreak of COVID—19 has raised considerable alarm about public health and safety. The response to the outbreak, however, has also brought concern regarding its impact on local governments in the United States. Local governments have been a primary respondent in the fight against the COVID—19 disease, but the response has also reduced income from a key source of revenue, sales tax. Using North Carolina counties as a case study, we explore the shock to sales and use tax revenue faced by local governments from COVID—19; we, then, estimate its impact on county fiscal health. Our results show that while many local governments were financially struggling before the outbreak, the drop in sales tax revenue severely threatens their ability to provide continued response to the virus as well as their ability to remain solvent.