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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 / Nimark, Kristoffer / Wang, Pengfei

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IMPACT FACTOR 2016: 0.043
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CiteScore 2016: 0.36

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

Justin Svec / Ayako Kondo
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

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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.

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©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston. Copyright Clearance Center

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