Advanced Search
MyIDEAS: Login to save this paper or follow this series

The effects of state budget cuts on employment and income

Contents:

Author Info

  • Clemens, Jeffrey
  • Miran, Stephen

Abstract

Balanced budget requirements lead to substantial pro-cyclicality in state government spending outside of safety-net programs. At the beginnings of recessions, states tend to experience unexpected deficits. While all states ultimately pay these deficits down, differences in the stringency of their balanced budget requirements dictate the pace at which they adjust. States with strict rules enact large rescissions to their budgets during the years in which adverse shocks occur; states with weak rules make up the difference during the following years. We use this variation to identify the impact of mid-year budget cuts on state income and employment. Our baseline estimates imply i) a state-spending multiplier of 1.7 and ii) that avoiding $25,000 in mid-year cuts preserves one job. These cuts are associated with shifts in the timing of government expenditures rather than differences in total spending over the course of the business cycle. Consequently, our results are informative about the potential gains from smoothing the path of state government spending. They imply that states could reduce the amplitude of business-cycle fluctuations by 15% if they completely smoothed their capital spending and service provision outside of safety-net programs.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/38715/
File Function: original version
Download Restriction: no

File URL: http://mpra.ub.uni-muenchen.de/38716/
File Function: revised version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 38715.

as in new window
Length:
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:pra:mprapa:38715

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: Fiscal Policy; Government Spending Multiplier; State Government Budgets; Fiscal Institutions;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Mountford, Andrew & Uhlig, Harald, 2002. "What are the Effects of Fiscal Policy Shocks?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3338, C.E.P.R. Discussion Papers.
  2. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  3. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, W.E. Upjohn Institute for Employment Research, number wbsle.
  4. Clemens, Jeffrey & Miran, Stephen, 2010. "The effects of state budget cuts on employment and income," MPRA Paper 38715, University Library of Munich, Germany.
  5. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
  6. Lauren Cohen & Joshua D. Coval & Christopher Malloy, 2010. "Do Powerful Politicians Cause Corporate Downsizing?," NBER Working Papers 15839, National Bureau of Economic Research, Inc.
  7. Jaeger, Albert, 1994. "Mechanical Detrending by Hodrick-Prescott Filtering: A Note," Empirical Economics, Springer, Springer, vol. 19(3), pages 493-500.
  8. Robert Krol & Shirley Svorny, 2007. "Budget Rules and State Business Cycles," Public Finance Review, , vol. 35(4), pages 530-544, July.
  9. Levinson, Arik, 1998. "Balanced Budgets and Business Cycles: Evidence from the States," National Tax Journal, National Tax Association, vol. 51(n. 4), pages 715-32, December.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is featured on the following reading lists or Wikipedia pages:
  1. Fiscal Policy Multipliers on Subnational Government Spending (AEJ:EP 2012) in ReplicationWiki

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:38715. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.