Minimizing the Harm of State Fiscal Volatility
14 Pages Posted: 11 Sep 2010 Last revised: 7 Mar 2011
Date Written: September 6, 2010
This report’s primary concern is how U.S. state governments should respond to the fiscal volatility created by their balanced budget constraints. Applying the principles of risk allocation theory to this recurring problem, we conclude that states should primarily adjust the rates of broad-based taxes as their economies cycle, rather than fluctuating public spending.
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