State budgets in the United States played a significant macroeconomic role in the 1970s and 1980s, and the level of cyclical responsiveness was affected by the severity of statutory and constitutional fiscal restraints. Moving from no fiscal restraints to the most stringent restraints lowered the fiscal offset to income fluctuations by around 40%. Simulations indicate that a reduction in aggregate fiscal stabilizers of this size could lead to a significant increase in the variance of aggregate output.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
1029.
Find related papers by JEL classification: E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
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