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Walking a tightrope: are U. S. state and local governments on a fiscally sustainable path?

Author

Listed:
  • Zhao, Bo

    () (Federal Reserve Bank of Boston)

  • Coyne, David

    (University of California, San Diego)

Abstract

This paper develops a new measure of state and local fiscal sustainability called the "trend gap," which is based on socioeconomic and other fundamental factors and removes the short-term influence of the business cycle. The paper estimates the trend gap and finds that the nationwide per capita trend gap has been on a growing path over the past three decades, a different conclusion than found in previous studies. Social insurance and income maintenance programs have played a major role in the growth of the trend gap, while pension and other post-employment benefits (OPEB) plans have become increasingly important in driving it up. In addition, there are large and growing disparities in the trend gap across states.

Suggested Citation

  • Zhao, Bo & Coyne, David, 2013. "Walking a tightrope: are U. S. state and local governments on a fiscally sustainable path?," Working Papers 13-18, Federal Reserve Bank of Boston.
  • Handle: RePEc:fip:fedbwp:13-18
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    References listed on IDEAS

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    1. James M. Poterba, 1997. "Demographic structure and the political economy of public education," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 16(1), pages 48-66.
    2. Robert Novy-Marx & Joshua D. Rauh, 2009. "The Liabilities and Risks of State-Sponsored Pension Plans," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 191-210, Fall.
    3. Robert Novy-Marx & Joshua D. Rauh, 2012. "The Revenue Demands of Public Employee Pension Promises," NBER Working Papers 18489, National Bureau of Economic Research, Inc.
    4. Howard Chernick & Adam Langley & Andrew Reschovsky, 2012. "Predicting the Impact of the U.S. Housing Crisis and "Great Recession" on Central City Revenues," Publius: The Journal of Federalism, Oxford University Press, vol. 42(3), pages 467-493, July.
    5. Donald Bruce & William F. Fox & M.H. Tuttle, 2006. "Tax Base Elasticities: A Multi-State Analysis of Long-Run and Short-Run Dynamics," Southern Economic Journal, Southern Economic Association, vol. 73(2), pages 315-341, October.
    6. Mahdavi, Saeid & Westerlund, Joakim, 2011. "Fiscal stringency and fiscal sustainability: Panel evidence from the American state and local governments," Journal of Policy Modeling, Elsevier, vol. 33(6), pages 953-969.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    fiscal sustainability; state and local fiscal trends;

    JEL classification:

    • H4 - Public Economics - - Publicly Provided Goods
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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