State And Local Finances And The Macroeconomy: The High-Employment Budget And Fiscal Impetus

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Executive Summary

The author examines the interplay of the economy and state and local budgets by developing and examining two measures of fiscal policy: the high-employment budget and fiscal impetus. The author finds that a 1 percentage point increase in cyclical GDP results in a 0.1 percentage point increase in NIPA-based net saving through the automatic response of taxes and expenditures. State and local budget policies are found to be modestly procyclical. Stimulus to aggregate demand is about 0.2 percentage point less following a business cycle peak than it is during the period before the business cycle peak.

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