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State Fiscal Adjustment During Times of Stress: Possible Causes of the Severity and Composition of Budget Cuts

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  • Clemens, Jeffrey

Abstract

Efforts to maintain balanced budgets lead to substantial pro-cyclicality in states' capital investments, transfers to local governments, and spending in areas like education and transportation. Reliance on volatile revenue sources predicts relatively severe volatility in these expenditures. States with strict balanced budget requirements must restore fiscal balance faster than those without, leading to rescissions during years in which they face unexpected shocks. I find that these rescissions occur disproportionately in areas with readily deferred projects. Evidence points to the relative strength of public sector union groups as a driver of variation in the composition of mid-year rescissions across states.

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  • Clemens, Jeffrey, 2013. "State Fiscal Adjustment During Times of Stress: Possible Causes of the Severity and Composition of Budget Cuts," MPRA Paper 55921, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:55921
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    Cited by:

    1. Jeffrey Clemens & Benedic Ippolito, 2018. "Implications of Medicaid Financing Reform for State Government Budgets," Tax Policy and the Economy, University of Chicago Press, vol. 32(1), pages 135-172.
    2. Veronica Grembi & Tommaso Nannicini & Ugo Troiano, 2011. "Policy Responses to Fiscal Restraints: A Difference-in-Discontinuities Design," Working Papers 397, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    3. Clemens, Jeffrey & Cutler, David M., 2014. "Who pays for public employee health costs?," Journal of Health Economics, Elsevier, vol. 38(C), pages 65-76.
    4. Andrew Chamberlain, 2015. "Are State Workers Overpaid? Survey Evidence from Liquor Privatization in Washington State," Journal of Labor Research, Springer, vol. 36(4), pages 347-388, December.
    5. Bo Zhao, 2014. "Saving for a rainy day: estimating the appropriate size of U.S. state budget stabilization funds," Working Papers 14-12, Federal Reserve Bank of Boston.
    6. Zhao, Bo, 2016. "Saving for a rainy day: Estimating the needed size of U.S. state budget stabilization funds," Regional Science and Urban Economics, Elsevier, vol. 61(C), pages 130-152.
    7. Feiveson, Laura, 2015. "General revenue sharing and public sector unions," Journal of Public Economics, Elsevier, vol. 125(C), pages 28-45.
    8. Jeffrey Clemens & Stan Veuger, 2020. "Implications of the COVID-19 Pandemic for State Government Tax Revenues," National Tax Journal, National Tax Association;National Tax Journal, vol. 73(3), pages 619-644, September.
    9. David Coyne & Bo Zhao, 2011. "Designing formulas for distributing reductions in state aid," New England Public Policy Center Working Paper 11-2, Federal Reserve Bank of Boston.
    10. Shoag, Daniel & Veuger, Stan, 2016. "Uncertainty and the geography of the great recession," Journal of Monetary Economics, Elsevier, vol. 84(C), pages 84-93.
    11. Yolanda Kodrzycki, 2014. "Smoothing state tax revenues over the business cycle: gauging fiscal needs and opportunities," Working Papers 14-11, Federal Reserve Bank of Boston.

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    More about this item

    Keywords

    State and Local Governments; Fiscal Institutions; Balanced Budget Requirements; Unions;
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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