State and Local Fiscal Institutions in Recession and Recovery

Tracy M. Gordon

in The Oxford Handbook of State and Local Government Finance

Published in print March 2012 | ISBN: 9780199765362
Published online September 2012 | | DOI:

Series: Oxford Handbooks

 State and Local Fiscal Institutions in Recession and Recovery

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  • Economics
  • Public Economics
  • Macroeconomics and Monetary Economics


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This article analyzes the recent budget challenges that have prompted examination of the role of state and fiscal institutions such as balanced budget rules, tax and expenditure limits, debt restriction, and “rainy-day,” or budget stabilization, funds. Some commentators argue that stronger fiscal rules could have helped avert the 2008–2011 (and, still continuing) state and local budget crises. Others contend that rules already in force have exacerbated the budgetary effects of the Great Recession and that continuing with them as currently structured will not only make more difficult fiscal recovery but will also undermine the traditional role of the states in the federal system. California's demonstration of how such institutions can take a state from fiscal health and stability to near bankruptcy is a dramatic case, especially for those critics who are currently making the argument that institutions can lead to particularly severe unintended consequences. In contrast, as this article notes, legislatively imposed institutions, if well designed, can lead to increased public and social accountability.

Keywords: fiscal institutions; balanced budget; tax limits; expenditure; debt restriction; Great Recession

Article.  9052 words. 

Subjects: Economics ; Public Economics ; Macroeconomics and Monetary Economics

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