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Budget Rules and State Business Cycles

  • Robert Krol

    (California State University, Northridge,

  • Shirley Svorny

    (California State University, Northridge)

Levinson (1998) finds that large states with lenient balanced budget rules experience less cyclical variability. He concludes that state fiscal policy works. However, Levinson's finding is not robust to alternative methods of detrending the data. In addition, the 1984 Advisory Commission on Intergovernmental Relations (ACIR) analysis of state budget rules used by Levinson (and other researchers) is of questionable merit. Reestimation of Levinson's regressions using budget rule classifications in a U.S. General Accounting Office (GAO) study reverses his result. The results from this study suggest that existing empirical work using the ACIR index should be revisited.

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Article provided by in its journal Public Finance Review.

Volume (Year): 35 (2007)
Issue (Month): 4 (July)
Pages: 530-544

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Handle: RePEc:sae:pubfin:v:35:y:2007:i:4:p:530-544
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