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National Fiscal Policies to Fight Recessions in US States

Author

Listed:
  • Karen Dynan
  • Douglas Elmendorf

Abstract

Countercyclical fiscal policy generally focuses on national economic downturns. But US states experience significantly different patterns of unemployment, and demand shocks appear to drive much of that variation. State budget rules limit the ability of states to mount their own countercyclical policies. Federal taxes and spending programs have countercyclical effects within states, but the magnitude of those effects depends on policies that were designed based on other considerations (just as the extent of national automatic stabilizers is the result of policies based on other considerations). Enacting countercyclical fiscal policy calibrated to state unemployment rates would reduce the cost of recessions.

Suggested Citation

  • Karen Dynan & Douglas Elmendorf, 2020. "National Fiscal Policies to Fight Recessions in US States," AEA Papers and Proceedings, American Economic Association, vol. 110, pages 131-136, May.
    • Handle: RePEc:aea:apandp:v:110:y:2020:p:131-36
    DOI: 10.1257/pandp.20201076
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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • 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
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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