IDEAS home Printed from https://ideas.repec.org/a/eee/moneco/v60y2013i5p517-530.html
   My bibliography  Save this article

Local deficits and local jobs: Can US states stabilize their own economies?

Author

Listed:
  • Carlino, Gerald A.
  • Inman, Robert P.

Abstract

Using a sample of the 48 mainland US states for the period 1973–2009, we study the ability of US states to expand their own state employment through the use of state deficit policies. The analysis allows for the facts that US states are part of a wider monetary and economic union with free factor mobility across all states and that state residents and firms may purchase goods from “neighboring” states. Those purchases may generate economic spillovers across neighbors. Estimates suggest that states can increase their own state employment by increasing their own deficits. There is evidence of spillovers to employment in neighboring states defined by common cyclical patterns among state economies. For large states, aggregate spillovers to its economic neighbors are approximately two-thirds of the large state's job growth. Because of significant spillovers and possible incentives to free-ride, there is a potential case to actively coordinate (i.e., centralize) the management of stabilization policies. Finally, the job effects of a temporary increase in state own deficits persist for at most one to two years, and there is evidence of a negative impact on state jobs when these deficits are scheduled for repayment.

Suggested Citation

  • Carlino, Gerald A. & Inman, Robert P., 2013. "Local deficits and local jobs: Can US states stabilize their own economies?," Journal of Monetary Economics, Elsevier, vol. 60(5), pages 517-530.
  • Handle: RePEc:eee:moneco:v:60:y:2013:i:5:p:517-530
    DOI: 10.1016/j.jmoneco.2013.04.015
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304393213000640
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Haughwout, Andrew F. & Inman, Robert P., 2001. "Fiscal policies in open cities with firms and households," Regional Science and Urban Economics, Elsevier, vol. 31(2-3), pages 147-180, April.
    2. Holtz-Eakin, Douglas, 1994. "Public-Sector Capital and the Productivity Puzzle," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 12-21, February.
    3. Òscar Jordà, 2005. "Estimation and Inference of Impulse Responses by Local Projections," American Economic Review, American Economic Association, vol. 95(1), pages 161-182, March.
    4. Daniel J. Wilson, 2012. "Fiscal Spending Jobs Multipliers: Evidence from the 2009 American Recovery and Reinvestment Act," American Economic Journal: Economic Policy, American Economic Association, vol. 4(3), pages 251-282, August.
    5. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1989. "The Revenues-Expenditures Nexus: Evidence from Local Government Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(2), pages 415-429, May.
    6. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April.
    7. Robert E. Hall & Paul R. Milgrom, 2008. "The Limited Influence of Unemployment on the Wage Bargain," American Economic Review, American Economic Association, vol. 98(4), pages 1653-1674, September.
    8. Christina D. Romer & David H. Romer, 2010. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," American Economic Review, American Economic Association, vol. 100(3), pages 763-801, June.
    9. Helms, L Jay, 1985. "The Effect of State and Local Taxes on Economic Growth: A Time Series-Cross Section Approach," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 574-582, November.
    10. Roel Beetsma & Massimo Giuliodori, 2011. "The Effects of Government Purchases Shocks: Review and Estimates for the EU," Economic Journal, Royal Economic Society, vol. 121(550), pages 4-32, February.
    11. Caselli, Francesco & Esquivel, Gerardo & Lefort, Fernando, 1996. "Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Journal of Economic Growth, Springer, vol. 1(3), pages 363-389, September.
    12. Bowsher, Clive G., 2002. "On testing overidentifying restrictions in dynamic panel data models," Economics Letters, Elsevier, vol. 77(2), pages 211-220, October.
    13. Hebous, Shafik & Zimmermann, Tom, 2013. "Estimating the effects of coordinated fiscal actions in the euro area," European Economic Review, Elsevier, vol. 58(C), pages 110-121.
    14. Alan J. Auerbach & Yuriy Gorodnichenko, 2013. "Output Spillovers from Fiscal Policy," American Economic Review, American Economic Association, vol. 103(3), pages 141-146, May.
    15. David E. Wildasin, 2000. "Factor mobility and fiscal policy in the EU: policy issues and analytical approaches," Economic Policy, CEPR;CES;MSH, vol. 15(31), pages 337-378, October.
    16. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    17. Valerie A. Ramey, 2011. "Can Government Purchases Stimulate the Economy?," Journal of Economic Literature, American Economic Association, vol. 49(3), pages 673-685, September.
    18. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    19. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
    20. Pauly, Mark V, 1970. "Optimality, 'Public' Goods, and Local Governments: A General Theoretical Analysis," Journal of Political Economy, University of Chicago Press, vol. 78(3), pages 572-585, May-June.
    21. Craig, Steven G & Inman, Robert P, 1982. "Federal Aid and Public Education: An Empirical Look at the New Fiscal Federalism," The Review of Economics and Statistics, MIT Press, vol. 64(4), pages 541-552, November.
    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


    Cited by:

    1. Joe A. Stone, 2016. "Do Balanced-Budget Rules Increase Growth?," Bulletin of Economic Research, Wiley Blackwell, vol. 68(1), pages 79-89, January.
    2. Gerald Carlino & Robert P. Inman, 2013. "Macro Fiscal Policy in Economic Unions: States as Agents," NBER Working Papers 19559, National Bureau of Economic Research, Inc.
    3. Rui Pereira, 2014. "Okun’s law, asymmetries and regional spillovers: evidence from Virginia metropolitan statistical areas and the District of Columbia," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 52(2), pages 583-595, March.
    4. Matthias Uhl, 2014. "State Fiscal Policies and Regional Economic Activity," MAGKS Papers on Economics 201446, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    5. Virkola, Tuomo, 2014. "Fiscal Federalism in Four Federal Countries," ETLA Reports 38, The Research Institute of the Finnish Economy.
    6. Falilou Fall & Debra Bloch & Jean-Marc Fournier & Peter Hoeller, 2015. "Prudent debt targets and fiscal frameworks," OECD Economic Policy Papers 15, OECD Publishing.
    7. repec:spr:lsprsc:v:10:y:2017:i:3:d:10.1007_s12076-017-0189-7 is not listed on IDEAS

    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:moneco:v:60:y:2013:i:5:p:517-530. 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: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/505566 .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.