States in fiscal distress
The 2007-10 recession has imposed significant fiscal hardships on state and local governments. The result has been state budget deficits and the need to increase state taxes, cut spending, and withdraw funds from state “rainy day” accounts. The primary cause of state budget “gaps” has been the rise in the level of state unemployment. There is no evidence that these gaps are related to state political institutions, a state’s prior receipt of federal funding, or possibly favored access to key congressional budget committees. The federal government has responded to these gaps with the passage of the American Recovery and Reinvestment Act (ARRA) of 2009 to aid states in fiscal distress and provide economic stimulus. Though intended as insurance for fiscal distress, ARRA covers at most $0.23 of each dollar of a state’s recession-induced budget gap. These funds are provided through a large per capita payment to each state, independent of any level of state deficit. AARA was also intended as targeted assistance for stimulating local economies, but its funding is uncorrelated with state unemployment rates. ARRA funding appears to be decided by congressional politics, given Congress’s desire to pass a major spending and tax relief package as quickly as possible. States are important “agents” for federal macroeconomic policy, but agents with their own needs and objectives.
Volume (Year): (2010)
Issue (Month): Oct ()
|Contact details of provider:|| Postal: P.O. Box 442, St. Louis, MO 63166|
Web page: http://www.stlouisfed.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.:
- Robert P. Inman, 2008. "The Flypaper Effect," NBER Working Papers 14579, National Bureau of Economic Research, Inc.
- Antonio Rangel, 2002. "How to Protect Future Generations Using Tax Base Restrictions," NBER Working Papers 9179, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:fip:fedlrd:y:2010:i:oct:p:65-80:n:v.6no.1. 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: (Anna Xiao)
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.