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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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  • Follette, Glenn & Kusko, Andrea & Lutz, Byron, 2008. "State and Local Finances and the Macroeconomy: The High–Employment Budget and Fiscal Impetus," National Tax Journal, National Tax Association, vol. 61(3), pages 531-545, September.
  • Handle: RePEc:ntj:journl:v:61:y:2008:i:3:p:531-45

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    References listed on IDEAS

    1. 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.
    2. Rebecca M. Blank, 2001. "What Causes Public Assistance Caseloads to Grow?," Journal of Human Resources, University of Wisconsin Press, vol. 36(1), pages 85-118.
    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 555-572, September.
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    Cited by:

    1. Glenn Follette & Byron Lutz, 2010. "Fiscal Policy in the United States: Automatic Stabilizers, Discretionary Fiscal Policy Actions, and the Economy," Revista de Economía y Estadística, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, vol. 0(1), pages 41-73, January.
    2. Waltraud Schelkle, 2010. "Good Governance in Crisis or a Good Crisis for Governance? A Comparison of the EU and the US," LEQS – LSE 'Europe in Question' Discussion Paper Series 16, European Institute, LSE.
    3. Clemens, Jeffrey, 2013. "State Fiscal Adjustment During Times of Stress: Possible Causes of the Severity and Composition of Budget Cuts," MPRA Paper 55921, University Library of Munich, Germany.
    4. Clemens, Jeffrey & Cutler, David M., 2014. "Who pays for public employee health costs?," Journal of Health Economics, Elsevier, vol. 38(C), pages 65-76.
    5. David J. Stockton, 2013. "Fiscal Policy in the United States: Still in Need of a Strategy," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 14(2), pages 09-16, August.

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