State And Local Budget Surpluses And The Effect Of Federal Macroeconomic Policies

This dissertation investigates state and local government budget behavior over the business cycle with the aim of improving the design and implementation of fiscal policy. It examines how the various components of state-local government budgets have behaved historically and seeks to understand how on-the-ground, practical, and political issues impact state and local government's ability to engage in countercyclical spending. The first chapter of this dissertation motivates the need to account for state and local government budgets in macroeconomic fiscal policy. It shows that the contemporary macroeconomic fiscal policy literature overlooks the role of state and local government budgets. I argue that it is critical to fill this gap because of the significant impact state and local government budgets can have on overall fiscal policy. Chapter 2 investigates the behavior of state and local government budgets over business cycles from 1954 to 2015. It classifies each component of state and local government budgets as pro-cyclical, countercyclical, or non-cyclical. This analysis helps us see clearly which components of state-local government budgets have historically supported countercyclical fiscal policy and which have hindered it. Chapter 3 examines the effectiveness of state-local government capital spending as a countercyclical tool. Capital spending has the most potential for countercyclical purposes. This chapter identifies institutional and on-the-ground barriers to using capital spending for countercyclical purposes. Chapter 4 analyzes the role of state and local government spending in the most recent economic recovery from 2010 to 2015. State and local government spending has historically contributed to federal government recovery efforts. However, in the 2010 recovery, state and local government spending became a drag. Analyzing the state-local government slowdown during the 2010 recovery can help us identify the key factors that turned state-local government spending from a supportive source to a barrier. Chapter 5 develops policy proposals for state and local government countercyclical spending taking into account all the lessons from the previous chapters. I argue that the most promising areas for policy change are: 1) expanding federal government support; 2) reforming rainy day funds; 3) utilizing the capital budget; 4) loosening financial constraints; and 5) addressing political constraints.

Examines the effects of the economy on the gov¿t. budget as well as the effects of the budget on the economy. Provides measures of the effects of automatic stabilizers on budget outcomes at the fed., state and local levels. At the fed. level, the deficit increases about 0.35% of GDP for each 1 percentage point deviation of actual GDP relative to potential GDP. For state and local gov¿t., the deficit increases by 0.1% of GDP. Examines the response of the economy to the automatic stabilizers by comparing the response to aggregate demand shocks. The authors find that federal policy actions are somewhat counter-cyclical while state and local policy actions have been somewhat pro-cyclical. Illustrations. This is a print on demand publication.

The Budget Deficit and National Debt analyzes and attempts to better understand the problems associated with the debt and deficit. The theme of this book parallels the Miller Center's primary focus on governance and the presidency. The president is a key actor in submitting, approving, and administrating the budget. Therefore, the study of debt and deficit is in keeping with the Miller Center's focus on governance and the presidency. The book is divided into four sections. The first section discusses the debt and deficit from a variety of political perspectives and ideological approaches. Three contributors, representing different schools of thought and professional backgrounds, provide separate frameworks for considering the budget and deficit. The first section contrasts liberal, conservative, and independent views and compares the effects of the deficit on federal and local governments. The second section provides an overview of the origins and growth of the deficit and its effect on the U.S. economy. The authors outline interaction among and competition between economic and political forces operating in the United States, and they debate the merits of deficit reduction proposals. The third section examines the economic and political ramifications of the deficit, reviewing tactical and strategic errors and their consequences. The book concludes with a discussion of the political struggle over controlling the deficit and chronicles the ambitions and rivalries of two key political figures--Bill Clinton and Newt Gingrich. Their dispute over the seven year balanced-budget plan had significant influence on the policies of debt and deficit.

This book is the first product of a multiyear study by the Princeton Urban and Regional Research Center of how new domestic priorities have affected American states and localities. It concentrates on federal changes affecting the services, finances, and politics of state and local governments.