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State and local finances and the macroeconomy: the high-employment budget and fiscal impetus

  • Glenn Follette
  • Andrea Kusko
  • Byron Lutz

We examine the interplay of the economy and state and local budgets by developing and examining two measures of fiscal policy: the high-employment budget and fiscal impetus. We find that a 1 percentage point increase in cyclical GDP results in a 0.1 percentage point increase in NIPA-based net saving through the automatic response of taxes and expenditures. State and local budget policies are found to be modestly pro-cyclical. Stimulus to aggregate demand is about 0.2 percentage point less following a business cycle peak than it is during the period before the business cycle peak.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2009-05.

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Date of creation: 2009
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Handle: RePEc:fip:fedgfe:2009-05
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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, 1999. "The automatic fiscal stabilizers: quietly doing their thing," Finance and Economics Discussion Series 1999-64, Board of Governors of the Federal Reserve System (U.S.).
  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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