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Public Economics

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Colby College

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Full-Text Articles in Macroeconomics

Cyclicality Of State Budgeting: A Political-Economy Analysis., Ian W. Cummins Jan 2009

Cyclicality Of State Budgeting: A Political-Economy Analysis., Ian W. Cummins

Honors Theses

This paper disentangles the effect of political ideology and budget rules on fiscal cyclicality across the U.S. states. Using panel data from 1963 to 2006, liberal states are found to be significantly less procyclical than conservative ones. The impact of balanced budget constraints is contingent on the ideological orientation of the state in which they are imposed. Tight balanced budget rules are not binding on conservative states, but are binding on liberal ones. Where they are binding, budget rules mediate the link between voter preferences and policy outcomes skewing them toward greater procyclicality.