Fiscal Policy Multipliers on Subnational Government Spending

Jeffrey Clemens and Stephen Miran

American Economic Journal: Economic Policy, 2012, vol. 4, issue 2, 46-68

Abstract: Balanced budget requirements lead to substantial pro-cyclicality in state government spending, with the stringency of a state's rules driving the pace at which it must adjust to shocks. We show that fiscal institutions can generate natural experiments in deficit-financed spending that are informative regarding fiscal stabilization policy. Alternative sources of variation in subnational fiscal policy often implicitly involve "windfall" financing, which precludes any effect of future debt or taxation on current consumption and investment. Consistent with a role for these "Ricardian" effects, our estimates are smaller than those in related studies, implying an on-impact multiplier below 1. (JEL C51, E32, E62, H72)

JEL-codes: C51 E32 E62 H72 (search for similar items in EconPapers)
Date: 2012
Note: DOI: 10.1257/pol.4.2.46
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Citations: View citations in EconPapers (127)

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Related works:
Chapter: Fiscal Policy Multipliers on Subnational Government Spending (2010)
Working Paper: The effects of state budget cuts on employment and income (2010)
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