NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Budget Institutions and Fiscal Policy in the U.S. States

James M. Poterba

NBER Working Paper No. 5449
Issued in February 1996
NBER Program(s):   PE

This paper summarizes state balanced budget requirements, and the available empirical evidence on the effect of these rules on state fiscal policies. Existing state rules differ from many current proposals at the federal level. They are typically restricted to part of the state budget, they frequently permit short term borrowing, and they lack formal enforcement mechanisms. The paper also surveys previous research on how anti-deficit provisions affect state fiscal policy. The available evidence indicates that stringent anti-deficit provisions lead to more rapid adjustment of state taxes and expenditures when fiscal deficits emerge. This suggests that changing the federal budget process has the potential to affect federal fiscal policy.

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Document Object Identifier (DOI): 10.3386/w5449

Published: American Economic Review, Vol. 86 (May 1996): 395-400. citation courtesy of

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