The Inequitable Distribution of Government Funds: The Case of COVID-19 Economic Injury Disaster Loans

Abstract

The COVID-19 pandemic brought a wave of challenges to the U.S. economy, from skyrocketing unemployment to state-wide lockdowns which hampered many small businesses. GDP dropped by 8.9% in the second quarter of 2020, and susceptible industries such as Restaurants, Hotels, and Airlines faced the brute of these hardships. In response, the U.S. government initiated enormous Keynesian spending programs to inject liquidity into the economy and support businesses, establishing low interest rates and offering generous loan forgiveness. From March 2020 to June 2022, the government distributed nearly $4.5 trillion in total budgetary resources to mitigate the struggles faced by Americans. Specifically, the Small Business Administration (SBA) leveraged the Economic Injury Disaster Loans (EIDL) Program to aid small businesses. This study sought to determine whether government funding was equitably distributed on the county level, and whether they resulted in higher employment. The findings reveal inequitable distribution of government funds based on the size of the county (funding per capita or funding per laborer) that may be explained by inequitable COVID-19 impacts (more targeted spending in more urban areas with greater concentration of businesses). Moreover, negative correlations exist between the number of direct payments and the unemployment rate, and the total funding amount and unemployment rate.