Category Archives: Economy

State Economic Monitor

Source: Urban Institute, Updated November 2017

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.

Sections
Each section is updated when new data are released. Updated November 2017
Employment
Earnings
Housing
Taxes
Historical

Consumption Taxes, Income Taxes, and Revenue Sensitivity: States and the Great Recession

Source: Howard Chernick, Cordelia Reimers, Public Finance Review, OnlineFirst, Published November 30, 2017

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.

Understanding Muni Bonds: Prospects for Funding Infrastructure Improvements

Source: Ed Friedman, Regional Financial Review, August 2017
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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…..

The Economic Impact of Harvey, Irma and Maria

Source: Adam Kamins, Ryan Sweet, Regional Financial Review, September 2017
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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.

Millionaires or Job Creators: What Really Happens to Employment Growth When You Stick It to the Rich?

Source: Ahiteme N. Houndonougbo, Matthew N. Murray, Public Finance Review, Online First, Published September 27, 2017
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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.

Can State Tax Policy Increase Economic Activity and Reduce Inequality?

Source: Harvey Cutler, Martin Shields and Stephen Davies, Growth and Change, Early View, September 10, 2017
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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.

The Direct and Indirect (Spillover) Effects of Productive Government Spending on State Economic Growth

Source: Andrew Ojede, Bebonchu Atems, Steven Yamarik, Growth and Change, Early View, September 25, 2017
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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.