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Walking a Tightrope: Are U.S. State and Local Governments on a Fiscally Sustainable Path?

45 Pages Posted: 30 Jan 2014  

Bo Zhao

Federal Reserve Bank of Boston

David Coyne

University of California, San Diego (UCSD) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2013

Abstract

This paper develops a new measure of state and local fiscal sustainability called the "trend gap," which is based on socioeconomic and other fundamental factors and removes the short-term influence of the business cycle. The paper estimates the trend gap and finds that the nationwide per capita trend gap has been on a growing path over the past three decades, a different conclusion than found in previous studies. Social insurance and income maintenance programs have played a major role in the growth of the trend gap, while pension and other post-employment benefits (OPEB) plans have become increasingly important in driving it up. In addition, there are large and growing disparities in the trend gap across states.

Keywords: fiscal sustainability, state and local fiscal trends

JEL Classification: H4, H7

Suggested Citation

Zhao, Bo and Coyne, David, Walking a Tightrope: Are U.S. State and Local Governments on a Fiscally Sustainable Path? (December 1, 2013). FRB of Boston Working Paper No. 13-18. Available at SSRN: https://ssrn.com/abstract=2386892 or http://dx.doi.org/10.2139/ssrn.2386892

Bo Zhao (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
T-10
Boston, MA 02210
United States
617-973-3061 (Phone)
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HOME PAGE: http://sites.google.com/site/bozhao/

David Coyne

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

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