IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Is state fiscal policy asymmetric over the business cycle?

  • Bent E. Sorensen
  • Oved Yosha

A number of stabilizers are thought to mute the business cycle. One key stabilizer is federal fiscal policy. The federal budget surplus tends to rise during economic booms and fall in downturns, helping to stabilize consumers’ disposable income and thereby mitigate economic fluctuations. During booms, for example, the budget surplus typically rises because tax revenues rise more than expenditures.> Another stabilizer that has traditionally received less attention is state fiscal policy. Like the federal budget surplus, state government surpluses tend to rise during economic expansions and decline during downturns. Moreover, like the federal budget, state budgets represent large shares of the economy. The stabilizing influence of state fiscal policy, however, may differ across business cycle expansions and downturns – making state fiscal policy asymmetric. For example, state budgets could be more effective at mitigating economic slumps than at muting booms if taxes fall more sharply during a slump than they rise in an expansion of equal magnitude. Asymmetry in fiscal policy could be caused by a number of factors, such as balanced budget rules, which are constitutionally imposed restrictions on a state government’s ability to incur debt.> Sorensen and Yosha examine the business cycle behavior of state fiscal policy to determine whether policy is asymmetric and, if so, to identify the causes. They conclude that state revenue and expenditure display significant asymmetry over the business cycle, with nearly offsetting effects on the budget surplus. As a result, state fiscal policy tends to mute economic booms to roughly the same degree it mitigates slowdowns. The asymmetries in revenue and expenditure appear to be associated with balanced budget rules, although their fundamental causes cannot be clearly identified.

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://www.kansascityfed.org/Publicat/econrev/Pdf/3q01sore.pdf
Download Restriction: no

Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.

Volume (Year): (2001)
Issue (Month): Q III ()
Pages: 43-64

as
in new window

Handle: RePEc:fip:fedker:y:2001:i:qiii:p:43-64:n:v.86no.3
Contact details of provider: Postal: One Memorial Drive, Kansas City, MO 64198
Phone: (816) 881-2254
Web page: http://www.kansascityfed.org

More information through EDIRC

Order Information: Email:


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. Karras, Georgios, 1996. "Are the Output Effects of Monetary Policy Asymmetric? Evidence from a Sample of European Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(2), pages 267-78, May.
  2. Barry Eichengreen and Tamim Bayoumi., 1993. "The Political Economy of Fiscal Restrictions: Implications for Europe from the United States," Center for International and Development Economics Research (CIDER) Working Papers C93-020, University of California at Berkeley.
  3. Lane, Philip R., 2003. "The cyclical behaviour of fiscal policy: evidence from the OECD," Journal of Public Economics, Elsevier, vol. 87(12), pages 2661-2675, December.
  4. Cover, James Peery, 1992. "Asymmetric Effects of Positive and Negative Money-Supply Shocks," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1261-82, November.
  5. Douglas Holtz-Eakin & Whitney K. Newey & Harvey S. Rosen, 1987. "The Revenues-Expenditures Nexus: Evidence from Local Government Data," NBER Working Papers 2180, National Bureau of Economic Research, Inc.
  6. Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March.
  7. Michael Gavin & Roberto Perotti, 1997. "Fiscal Policy in Latin America," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 11-72 National Bureau of Economic Research, Inc.
  8. James M. Poterba & Kim S. Rueben, 1997. "State Fiscal Institutions and the U.S. Municipal Bond Market," NBER Working Papers 6237, National Bureau of Economic Research, Inc.
  9. Sorensen, B.E. & Yosha, O., 1997. "Federal Insurance of the U.S. States: An Empirical Investigation," Papers 16-97, Tel Aviv.
  10. Alberto Alesina & Tamim Bayoumi, 1996. "The Costs and Benefits of Fiscal Rules: Evidence from U.S. States," NBER Working Papers 5614, National Bureau of Economic Research, Inc.
  11. James M. Poterba, 1993. "State Responses to Fiscal Crisis: The Effects of Budgetary Institutionsand Politics," NBER Working Papers 4375, National Bureau of Economic Research, Inc.
  12. Donald P. Morgan, 1993. "Asymmetric effects of monetary policy," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 21-33.
  13. Henning Bohn, 1998. "The Behavior Of U.S. Public Debt And Deficits," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 949-963, August.
  14. Fatas, Antonio & Mihov, Ilian, 2001. "Government size and automatic stabilizers: international and intranational evidence," Journal of International Economics, Elsevier, vol. 55(1), pages 3-28, October.
  15. Ernesto Talvi & Carlos A. Vegh, 2000. "Tax Base Variability and Procyclical Fiscal Policy," NBER Working Papers 7499, National Bureau of Economic Research, Inc.
  16. Edward M. Gramlich, 1991. "The 1991 State and Local Fiscal Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 249-288.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:fip:fedker:y:2001:i:qiii:p:43-64:n:v.86no.3. 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: (LDayrit)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.