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

31 Pages Posted: 6 Apr 2009

See all articles by Glenn R. Follette

Glenn R. Follette

Federal Reserve Board - Division of Research and Statistics

Andrea L. Kusko

Federal Reserve Board - Fiscal Analysis Section

Byron F. Lutz

Federal Reserve Board - Research Division

Date Written: January , 2009

Abstract

We examine 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. We find 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 pro-cyclical. 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.

Keywords: High-employment budget, fiscal impetus, net saving, fiscal policy, state and local government, budget policy

JEL Classification: H70, H71, H72, E62

Suggested Citation

Follette, Glenn R. and Kusko, Andrea L. and Lutz, Byron F., State and Local Finances and the Macroeconomy: The High-Employment Budget and Fiscal Impetus (January , 2009). FEDS Working Paper No. 2009-05. Available at SSRN: https://ssrn.com/abstract=1370485 or http://dx.doi.org/10.2139/ssrn.1370485

Glenn R. Follette (Contact Author)

Federal Reserve Board - Division of Research and Statistics ( email )

Washington, DC 20551
United States

Andrea L. Kusko

Federal Reserve Board - Fiscal Analysis Section

Washington, DC 20551
United States

Byron F. Lutz

Federal Reserve Board - Research Division ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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