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Output Fluctuations and Fiscal Policy: U.S. State and Local Governments 1978-1994

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  • Sorensen, B.E.
  • Wu, L.
  • Yosha, O.

Abstract

What are the cyclical properties of U.S. state and local government fiscal policy? The budget surplus of local and, in particular, state governments is procyclical, smoothing disposable income and consumption of state residents. This happens over both short- and medium-term horizons. Procyclical surpluses are the result of strongly procyclical revenues, and weakly procyclical expenditures. The budgets of trust funds and utilities are procyclical. Federal grants are procyclical, exacerbating the cyclical amplitude of state level income movements; although they smooth the idiosyncratic component of shocks to state output. State and local budget surpluses are affected by balanced budget rules at the short- but not at the medium-term horizon. Further, budgets are less procyclical in conservative states.

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Bibliographic Info

Paper provided by Tel Aviv in its series Papers with number 22-99.

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Length: 26 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:fth:teavfo:22-99

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Postal: Israel TEL-AVIV UNIVERSITY, THE FOERDER INSTITUTE FOR ECONOMIC RESEARCH, RAMAT AVIV 69 978 TEL AVIV ISRAEL.
Phone: 972-3-640-9255
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Web page: http://econ.tau.ac.il/research/foerder.asp
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Keywords: FISCAL POLICY ; BUSINESS CYCLES ; INCOME ; CONSUMPTION;

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References

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  1. States Look to Rainy Day Funds to Avoid Future Crises
    by Emily Washington in Neighborhood Effects on 2012-10-24 17:57:03
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Cited by:
  1. Vincent C. Blackburn & Richard Gerlach & Vasilis Sarafidis, 2007. "Dynamic Budgetary Adjustments in the Australian State Government Finance Sector: An Econometric Approach," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 3(2), pages 125-159, July.
  2. António Afonso & Luca Agnello & Davide Furceri, 2010. "Fiscal policy responsiveness, persistence, and discretion," Public Choice, Springer, vol. 145(3), pages 503-530, December.
  3. Nuria Bosch & Marta Espasa & Pilar Sorribas, 2002. "The redistributive, stabiliser and insurance effects at territorial level of "federal" government budgets," Working Papers 2002/5, Institut d'Economia de Barcelona (IEB).
  4. Steven Craig & Wided Hemissi & Satadru Mukherjee & Bent E. Sorensen, 2012. "How Do Politicians Save? Buffer Stock Management of Unemployment Insurance Finance," Working Papers 201302845, Department of Economics, University of Houston.
  5. Justin Svec & Ayako Kondo, 2012. "Fiscal Policy Cyclicality and Growth within the US States," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(2), pages 2.
  6. Niklas Potrafke & Markus Reischmann, 2012. "Fiscal Equalization Schemes and Fiscal Sustainability," CESifo Working Paper Series 3948, CESifo Group Munich.
  7. Luca Agnello & Ricardo M. Sousa, 2009. "The determinants of public deficit volatility," Working Paper Series 1042, European Central Bank.
  8. Mahdavi, Saeid & Westerlund, Joakim, 2011. "Fiscal stringency and fiscal sustainability: Panel evidence from the American state and local governments," Journal of Policy Modeling, Elsevier, vol. 33(6), pages 953-969.
  9. Karin Mayr & Johann Scharler, 2009. "Asymmetric Fiscal Stabilization Policy and the Public Deficit: Theory and Evidence," Vienna Economics Papers 0908, University of Vienna, Department of Economics.
  10. Aksoy, Yunus & Melina, Giovanni, 2012. "An empirical investigation of US fiscal expenditures and macroeconomic outcomes," Economics Letters, Elsevier, vol. 114(1), pages 64-68.
  11. Jan Zápal, 2007. "Cyclical Bias in Government Spending: Evidence from New EU Member Countries," Working Papers IES 2007/15, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised May 2007.
  12. Colin Hunt, 2005. "Discretion and Cyclicality in Irish Budgetary Management 1969-2003," The Economic and Social Review, Economic and Social Studies, vol. 36(3), pages 295-321.
  13. C. Randall Henning & Martin Kessler, 2012. "Fiscal federalism: US history for architects of Europe's fiscal union," Essays and Lectures 669, Bruegel.

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