The 2002 Downturn in State Revenues: A Comparative Review and Analysis

Giertz, J Fred and Giertz, Seth (2004): The 2002 Downturn in State Revenues: A Comparative Review and Analysis. Published in: National Tax Journal , Vol. 57, No. 1 : pp. 111-132.

Abstract

We analyze the behavior of state revenues since the early 1950s to determine the severity of the revenue declines experienced by states after the 2001 recession. Both total state revenues for the nation and state–level data for each state are studied. We conclude that the states were indeed hit with an unprecedented downturn in revenues—unlike anything that had been experienced in the preceding half–century. Further and contrary to general perceptions, revenue increases in the years preceding the downturn were not particularly strong compared to revenue increases in the years leading up to previous recessions. We further conclude that most proposed budget rules dealing with either taxes, spending, or savings would have been insufficient to address the states’ problems and that states will need major discretionary structural changes in state revenues and expenditures to return to fiscal balance.

• Item Type: MPRA Paper
• Language: English
• Keywords: State Revenues; Business Cycle; State Budget
• Subjects: H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H72 - State and Local Budget and Expenditures; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H71 - State and Local Taxation, Subsidies, and Revenue; H - Public Economics > H2 - Taxation, Subsidies, and Revenue

References

Amador, Manuel, Ivan Werning, and George–Marios–Angeltos. “Commitment vs. Flexibility.” MIT Working Paper. Boston, MA: Massachsetts Institute of Technology, 2003. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=471822.

Daly, Mary. “Understanding State Budget Trouble.” FRBSF Economic Letter No. 2003–23. San Francisco, CA: The Federal Reserve Bank of San Francisco, August 15, 2003.

Economic Report of the President. February, 2003: 54. http://w3.access.gpo.gov/eop/.

Garret, Thomas A. “State Budget Crises: Cause and Effect.” National Economic Trends. St. Louis, MO: The Federal Reserve Bank of St. Louis, November 3, 2003.

Knight, Brian, Andrea Kusko, and Laura Rubin. “Problems and Prospects for State and Local Governments.” In State Fiscal Crises: Causes, Consequences, Solutions. edited by Therese J. McGuire and C. Eugene Steurerle. State Tax Notes 30 No. 5 (November 2, 2003): 379–91.

Maag, Elaine, and David Merriman. “Tax Policy Responses to Revenue Shortfalls.” In State Fiscal Crises: Causes, Consequences, Solutions, edited by Therese J. McGuire and C. Eugene Steurerle. State Tax Notes 30 No. 5 (November 2, 2003): 393–403.

National Governors Association and National Association of State Budget Officers. The Fiscal Survey of the States. Washington, D.C., June, 2003. http://www.nasbo.org/Publications/fiscalsurvey/fs–spring20030813.pdf.

Poterba, James M. “State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics.”Journal of Political Economy 102 No. 4 (1994): 799–821.

The Wall Street Journal. “States of Recovery.” Editorial. (December 3, 2003): A16.