State Fiscal Adjustment During Times of Stress: Possible Causes of the Severity and Composition of Budget Cuts

Jeffrey Clemens

MPRA Paper from University Library of Munich, Germany

Abstract: Efforts to maintain balanced budgets lead to substantial pro-cyclicality in states' capital investments, transfers to local governments, and spending in areas like education and transportation. Reliance on volatile revenue sources predicts relatively severe volatility in these expenditures. States with strict balanced budget requirements must restore fiscal balance faster than those without, leading to rescissions during years in which they face unexpected shocks. I find that these rescissions occur disproportionately in areas with readily deferred projects. Evidence points to the relative strength of public sector union groups as a driver of variation in the composition of mid-year rescissions across states.

Keywords: State and Local Governments; Fiscal Institutions; Balanced Budget Requirements; Unions (search for similar items in EconPapers)
JEL-codes: H11 H71 H72 H77 (search for similar items in EconPapers)
Date: 2013-01-16
New Economics Papers: this item is included in nep-pub
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:55921

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