BALANCED BUDGETS AND BUSINESS CYCLES: EVIDENCE FROM THE STATES

Arik M. Levinson

118 citations0/0 files storedNational Tax Journal

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Fiscal Policies and Political Economy Monetary Policy and Economic Impact Local Government Finance and Decentralization

Abstract

This paper presents evidence that stringent balanced budget requirements enforced in some U.S. states have exacerbated business cycles in those states. The effect is not apparent directly. However, among states where fiscal policy may have more macroeconomic consequences (large states), the difference in volatility between states with lenient and strict balanced budget rules is larger (more negative or less positive) than among states where fiscal policy may be less relevant (small states). Two implications are suggested: (1) states' fiscal policies have real macroeconomic consequences, and (2) strict balanced budget requirements increase business cycle volatility.

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References

1994State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics 1994Divided Government, Fiscal Institutions, and Budget Deficits: Evidence from the States 1996Balanced-budget rules and public deficits: evidence from the U.S. states 1989A Neoclassical Perspective on Budget Deficits 1996Budget Institutions and Fiscal Policy in the U.S. States 1985Two Views of the Geographic Distribution of Unemployment 2016Is the Stabilization of the Postwar Economy a Figment of the Data 2018State and Local Public Finance

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2006A Framework for Understanding State Balanced Budget Requirement Systems: Reexamining Distinctive Features and an Operational Definition 2013All of the Above 2010INSTITUTIONS AND FISCAL SUSTAINABILITY 2014Fiscal Rules and the Procyclicality of Fiscal Policy in the Developing World 2007Is Government Expenditure Volatility Harmful for Growth? A Cross‐Country Analysis*2017

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