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Budget Rules and State Business Cycles

Robert Krol and Shirley Svorny ()
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Robert Krol: California State University, Northridge, robert.krol@csun.edu

Public Finance Review, 2007, vol. 35, issue 4, 530-544

Abstract: Levinson (1998) finds that large states with lenient balanced budget rules experience less cyclical variability. He concludes that state fiscal policy works. However, Levinson's finding is not robust to alternative methods of detrending the data. In addition, the 1984 Advisory Commission on Intergovernmental Relations (ACIR) analysis of state budget rules used by Levinson (and other researchers) is of questionable merit. Reestimation of Levinson's regressions using budget rule classifications in a U.S. General Accounting Office (GAO) study reverses his result. The results from this study suggest that existing empirical work using the ACIR index should be revisited.

Keywords: balanced budget rules; business cycles; stabilization policy; state level public finance (search for similar items in EconPapers)
Date: 2007
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