MEASURING THE AGGREGATE HIGH-EMPLOYMENT BUDGET FOR STATE AND LOCAL GOVERNMENTS

This paper offers a quantitative assessment of the relationship between the aggregate budget for the state and local government sector and the business cycle. We develop a state and local analog to the federal high-employment budget (HEB) to indicate whether the sector's budget is "structurally sound" and whether the sector is providing fiscal stimulus or restraint. Our results suggest that while cyclical forces have exacerbated the pressures on states and localities in recent years, these effects have been dominated by a fundamental imbalance between the sector's spending programs and its tax structure.