A Framework for Fiscal Policy Coordination and Economic Stability: Countercyclical Transfer for Infrastructure

Yilin Hou
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Yilin Hou: University of Georgia

Chapter Chapter 11 in State Government Budget Stabilization, 2013, pp 275-300 from Springer

Abstract: Abstract This chapter examines the theory behind the design of fiscal transfers; it identifies acyclicality of transfers as a drawback and proposes countercyclical design as an optimal fiscal framework to mitigate cyclical economic fluctuations. It further advocates countercyclical transfers for infrastructure investment, service maintenance, and business tax relief as incentives for states to save in boom years then build from recession into recovery. The framework is set to operate on time-consistent policy rules, as automatic stabilizers with triggers from key economic indicators. It advocates dynamic equity to compensate boom-year donor states ­during recession for more effective macroeconomic stabilization. This chapter focuses on fiscal policy; it does not discuss the political dynamics or details in implementation.

Keywords: Fiscal Policy; Policy Rule; Great Recession; Regime Switching; Infrastructure Investment (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:spr:stpchp:978-1-4614-6061-9_11

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DOI: 10.1007/978-1-4614-6061-9_11

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