American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
Fiscal Policy Multipliers on Subnational Government Spending
American Economic Journal: Economic Policy
vol. 4,
no. 2, May 2012
(pp. 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)Citation
Clemens, Jeffrey, and Stephen Miran. 2012. "Fiscal Policy Multipliers on Subnational Government Spending." American Economic Journal: Economic Policy, 4 (2): 46–68. DOI: 10.1257/pol.4.2.46Additional Materials
JEL Classification
- C51 Model Construction and Estimation
- E32 Business Fluctuations; Cycles
- E62 Fiscal Policy
- H72 State and Local Budget and Expenditures
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