Journal Article

State Fiscal Policy during the Great Recession: Budgetary Impacts and Policy Responses

SANCES, MICHAEL W., CAMPBELL, ANDREA LOUISE

2013

Overview

Plunging tax revenues and soaring social program demand during the Great Recession created state budget shortfalls of historic magnitude. After reviewing states' aggregate reaction to the economic downturn, we conduct an original analysis of the recession's budgetary impact on the states and their policy responses. Economic factors such as falling personal income and home values explain much of the variation in the recession's impact. State budgeting rules and practices conditioned states' experiences, but not always as intended: budget gaps were smaller in states with stricter balanced budget requirements, but larger in states with statutory spending limitations. Personal income tax increases were more likely in states with a Democratic legislature or greater public unionization rates, while midyear spending cuts were smaller in states with larger public sector unions. In sum, we find that while states' objective economic situations determined the bulk of their responses to the Great Recession, political factors determined these responses' shape and form.

• Publisher: SAGE Publications,SAGE PUBLICATIONS, INC
• Subject: Balanced budgets / Budget / Budget, Government / Budgets / Economic conditions / Economic Factors / Economic Recession / Economic recessions / Economic stabilization / Expenditures / Fiscal Policy / Government budgets / Government spending / Great Recession / Income / Income tax / Income taxes / Legislatures / Personal income taxes / Political economy / Political Factors / Political parties / Politics / Public finance / Public Sector / Recession / Recessions / Revenue / Rules / Rules and practice / Social programs / State and Local Variations in Responses to the Recession / State budgets / State government / State income tax / Tax revenue / Tax revenues / Taxation / Trade unions / Unionization / Unions / Values