The State and Local Finance Initiative’s State Economic Monitor tracks and analyzes economic and fiscal trends at the state level. Its interactive graphics highlight particular differences across all 50 states and the District of Columbia in employment, earnings, housing, and taxes.
State and local governments still haven’t regained many of the jobs they cut, and they’re unlikely to anytime soon.
From the abstract:
This article uses an income-distributional approach to state tax sensitivity to examine the assumption that consumption taxes are more stable than income taxes. We estimate the 2007 to 2009 change in tax revenues as a function of state income distributions and tax burdens by income class. We estimate tax burdens as a function of income tax shares and consumption tax shares. We then simulate the change in tax revenues with tax shares at the national average. If high-income-tax states were to lower their reliance on this tax, the revenue decline during the recession would have been greater. For high consumption tax states, the revenue decline under higher income tax shares would have been smaller. Had they shifted toward consumption taxes, income tax reliant states would not have reduced the cyclical sensitivity of tax revenues during the Great Recession. The interaction between tax burdens and recession shocks by income class is key to these results.
Source: Ed Friedman, Regional Financial Review, August 2017
Both monetary and fiscal policies will affect the municipal bond market over the coming year. Anticipated further tightening by the Federal Reserve will raise all interest rates, including the borrowing costs of state and local governments. The Trump administration’s goal of boosting infrastructure spending will potentially magnify this movement to the extent that it stimulates overall growth. Moreover, the municipal bond market will be one of the alternatives considered for the financing, the others being an infrastructure bank and one or more public-private partnerships.
This article assesses the structure of the muni market, macroeconomic trends in the market, and the role it may play in federal fiscal policy. The costs and benefits of using the muni market are weighed against the other alternatives…..
Source: Adam Kamins, Ryan Sweet, Regional Financial Review, September 2017
The late-summer spate of three major hurricanes making landfall in U.S. states or territories within a month is unprecedented in recent history. This paper focuses on the short- and long-term economic ramifications of the three late-summer storms to hit the U.S. and includes a review of the local impact on affected areas, as well as implications for the U.S. as a whole.
Sluggish wage growth stands out as the Achilles’ heel of the otherwise sturdy U.S. job market. With the economy almost at full employment, and more than eight years since the recession ended, a sustained pickup in paychecks remains elusive.
Source: Ahiteme N. Houndonougbo, Matthew N. Murray, Public Finance Review, Online First, Published September 27, 2017
From the abstract:
We provide empirical evidence on the consequences of relatively higher tax burdens on the rich for aggregate employment growth using a newly constructed time series for 1947 through 2011 derived from the US Statistics of Income. In response to shifts in the relative federal tax burden toward the rich, we find statistically significant positive effects on employment growth in the short run and some evidence of negative effects on employment growth in the long run. Among our robustness checks, we use the Romer and Romer narrative record analysis to restrict our sample to a period of exclusively exogenous tax changes. The results hold in the restricted sample and are also consistent across alternative specifications and estimation methods, including unrestricted and Bayesian vector autoregressive.
Source: Harvey Cutler, Martin Shields and Stephen Davies, Growth and Change, Early View, September 10, 2017
From the abstract:
Previous research shows that when changes in national commodity and income tax rates affect labor supply decisions differently, relative rates can be altered to increase welfare. In the U.S., 40 states impose both a sales and income tax; however, the reliance varies widely. This paper uses a computable general equilibrium model to examine tax policy changes in Colorado. The findings suggest that the revenue neutral changes to income and sales tax rates can affect both the level of economic activity and the distribution of income. When labor force participation is highly sensitive to income tax rate changes—which this paper suggests is the case—progressive changes to Colorado’s tax policy changes can both reduce inequality and increase output and employment.
Source: Andrew Ojede, Bebonchu Atems, Steven Yamarik, Growth and Change, Early View, September 25, 2017
From the abstract:
Using data on 48 contiguous U.S. states and a spatial econometric approach, this paper examines short- and long-run effects of productive higher education and highway infrastructure spending financed by different revenue sources on state economic growth. Following the Lagrange Multiplier, Wald, and Likelihood Ratio tests, the data are found to be characterized by both spatial lag and spatial error processes, leading to the estimation of a dynamic spatial Durbin model. By decomposing results of the dynamic spatial Durbin model into short- and long-run direct as well as indirect (spillover) effects, we show that accounting for spillover effects provides a more comprehensive approach to uncovering the effects of productive government spending on growth. We find that, regardless of the financing source, productive higher education and highway spending have statistically significant short- and long-run direct as well as spillover effects on state income growth.
It’s rosy at best to presume that the next 20 years will be as kind to Amazon as the last 20. Local taxpayers shouldn’t bear the risk of the corporation’s financial future.