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State and Local Finances and the Macroeconomy: The High–Employment Budget and Fiscal Impetus

Follette, Glenn, Kusko, Andrea, and Lutz, Byron

Abstract:

We use two measures of fiscal policy—the high–employment budget and fiscal impetus—to examine the interplay of the macroeconomy and state and local government budgets. We find that each one percent increase in GDP raises state and local net saving (as measured in the NIPA) by 0.1 percent of GDP through the automatic cyclical response of taxes and expenditures. We also find that the sector’s budget policies have been modestly pro–cyclical: The direct contribution to growth in real GDP has been about 0.2 percentage points smaller, on average, following business cycle peaks than it was before the peaks.

Citation

Follette, Glenn, Kusko, Andrea, and Lutz, Byron (2008), State and Local Finances and the Macroeconomy: The High–Employment Budget and Fiscal Impetus, National Tax Journal, 61:3, pp. 531-45

DOI: dx.doi.org/10.17310/ntj.2008.3.11