Social and Behavioral Sciences Commons^™

Minimizing The Harm Of State Fiscal Volatility, David Gamage, Jeremy Bearer-Friend

David Gamage

This report’s primary concern is how U.S. state governments should respond to the fiscal volatility created by their balanced budget constraints. Applying the principles of risk allocation theory to this recurring problem, we conclude that states should primarily adjust the rates of broad-based taxes as their economies cycle, rather than fluctuating public spending.