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The B.E. Journal of Macroeconomics

Editor-in-Chief: Cavalcanti, Tiago / Kambourov, Gueorgui

Ed. by Abraham, Arpad / Carceles-Poveda , Eva / Debortoli, Davide / Lambertini, Luisa

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1935-1690
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Fiscal Policy Cyclicality and Growth within the US States

Justin Svec
  • 1College of the Holy Cross,
/ Ayako Kondo
  • 2Hosei University,
Published Online: 2012-03-22 | DOI: https://doi.org/10.1515/1935-1690.2166

This paper exploits differences in the stringency of balanced budget rules across US states to estimate the effect of the cyclicality of fiscal policy on state GDP growth. While most states have passed laws restricting deficits, the nature and strictness of these laws vary greatly. States with more stringent balanced budget restrictions run more procyclical fiscal policy. We use the diversity in these laws as an instrument for the cyclicality of policy. We find evidence that a more counter-cyclical primary deficit increases a state's average growth rate per capita. This effect is robust to a number of alternative specifications. One concrete policy implication of this analysis is that a state could increase its annual growth rate by relaxing its balanced budget restrictions.

Keywords: counter-cyclical fiscal policy; growth; primary deficit

About the article

Published Online: 2012-03-22


Citation Information: The B.E. Journal of Macroeconomics, ISSN (Online) 1935-1690, DOI: https://doi.org/10.1515/1935-1690.2166. Export Citation

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