State Fiscal Adjustment During Times of Stress: Possible Causes of the Severity and Composition of Budget Cuts

Clemens, Jeffrey (2013): State Fiscal Adjustment During Times of Stress: Possible Causes of the Severity and Composition of Budget Cuts.

Abstract

Efforts to maintain balanced budgets lead to substantial pro-cyclicality in states' capital investments, transfers to local governments, and spending in areas like education and transportation. Reliance on volatile revenue sources predicts relatively severe volatility in these expenditures. States with strict balanced budget requirements must restore fiscal balance faster than those without, leading to rescissions during years in which they face unexpected shocks. I find that these rescissions occur disproportionately in areas with readily deferred projects. Evidence points to the relative strength of public sector union groups as a driver of variation in the composition of mid-year rescissions across states.

• Item Type: MPRA Paper
• Language: English
• Keywords: State and Local Governments; Fiscal Institutions; Balanced Budget Requirements; Unions
• Subjects: H - Public Economics > H1 - Structure and Scope of Government > H11 - Structure, Scope, and Performance of Government; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H71 - State and Local Taxation, Subsidies, and Revenue; 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 > H77 - Intergovernmental Relations ; Federalism ; Secession

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