Fiscal Policy Multipliers on Subnational Government Spending
AbstractBalanced budget requirements lead to substantial pro-cyclicality in state government spending, with the stringency of a state's rules driving the pace at which it must adjust to shocks. We show that fiscal institutions can generate natural experiments in deficit-financed spending that are informative regarding fiscal stabilization policy. Alternative sources of variation in subnational fiscal policy often implicitly involve "windfall" financing, which precludes any effect of future debt or taxation on current consumption and investment. Consistent with a role for these "Ricardian" effects, our estimates are smaller than those in related studies, implying an on-impact multiplier below 1. (JEL C51, E32, E62, H72)
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Journal: Economic Policy.
Volume (Year): 4 (2012)
Issue (Month): 2 (May)
Other versions of this item:
- Clemens, Jeffrey & Miran, Stephen, 2010. "The effects of state budget cuts on employment and income," MPRA Paper 38715, University Library of Munich, Germany.
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
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