U.S. State and Local Government Finances Over the Current Cycle

Information about Western Hemisphere Hemisferio Occidental

Journal Issue

Volume/Issue:: 1992/112
Series:: IMF Working Papers
Author(s):: Tamim Bayoumi
Publisher:: INTERNATIONAL MONETARY FUND
Published Date:: December 1992
DOI:: http://dx.doi.org/10.5089/9781451853520.001
ISBN:: 9781451853520
ISSN:: 1018-5941
Page:: 35

The recent slowdown in the U.S. economy has led to state and local government tax increases and expenditure cuts that have lowered aggregate demand, in contrast to earlier downturns when the sector provided significant automatic stabilizers. Several explanations for this change are examined, including the role of federal grants, mandates, tax revolts, and compensation. The first three factors are found to be relatively unimportant. There does, however, appear to have been a large change in relative compensation over the 1980s, which can account for much of the deterioration in finances.

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U.S. State and Local Government Finances Over the Current Cycle