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State and Local Finances and the Macroeconomy: The High–Employment Budget and Fiscal Impetus

  • Follette, Glenn
  • Kusko, Andrea
  • Lutz, Byron

We use two measures of fiscal policy—the high–employment budget and fiscal impetus—to examine the interplay of the macroeconomy and state and local government budgets. We find that each one percent increase in GDP raises state and local net saving (as measured in the NIPA) by 0.1 percent of GDP through the automatic cyclical response of taxes and expenditures. We also find that the sector’s budget policies have been modestly pro–cyclical: The direct contribution to growth in real GDP has been about 0.2 percentage points smaller, on average, following business cycle peaks than it was before the peaks.

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Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 61 (2008)
Issue (Month): 3 (September)
Pages: 531-45

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Handle: RePEc:ntj:journl:v:61:y:2008:i:3:p:531-45
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  1. Rebecca M. Blank, 1997. "What Causes Public Assistance Caseloads to Grow?," NBER Working Papers 6343, National Bureau of Economic Research, Inc.
  2. Darrel Cohen & Glenn Follette, 2000. "The automatic fiscal stabilizers: quietly doing their thing," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 35-67.
  3. Byron F. Lutz, 2008. "The connection between house price appreciation and property tax revenues," Finance and Economics Discussion Series 2008-48, Board of Governors of the Federal Reserve System (U.S.).
  4. Lutz, Byron F., 2008. "The Connection Between House Price Appreciation and Property Tax Revenues," National Tax Journal, National Tax Association, vol. 61(3), pages 555-72, September.
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