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Walking a tightrope: are U. S. state and local governments on a fiscally sustainable path?

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  • David Coyne
  • Bo Zhao

Abstract

This paper develops a new measure of state and local fiscal sustainability called the \"trend gap,\" which is based on socioeconomic and other fundamental factors and removes the short-term influence of the business cycle. The paper estimates the trend gap and finds that the nationwide per capita trend gap has been on a growing path over the past three decades, a different conclusion than found in previous studies. Social insurance and income maintenance programs have played a major role in the growth of the trend gap, while pension and other post-employment benefits (OPEB) plans have become increasingly important in driving it up. In addition, there are large and growing disparities in the trend gap across states.

Suggested Citation

  • David Coyne & Bo Zhao, 2013. "Walking a tightrope: are U. S. state and local governments on a fiscally sustainable path?," Working Papers 13-18, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:13-18
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    References listed on IDEAS

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    More about this item

    Keywords

    fiscal sustainability; state and local fiscal trends;

    JEL classification:

    • H4 - Public Economics - - Publicly Provided Goods
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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