Open AccessState Budget Deficit Dynamics and the California Debacle
Author(s) -
Steven M. Sheffrin
Publication year - 2004
Publication title -
the journal of economic perspectives/the journal of economic perspectives
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 9.614
H-Index - 196
eISSN - 1944-7965
pISSN - 0895-3309
DOI - 10.1257/0895330041371330
Subject(s) - revenue , recession , economics , boom , state (computer science) , tax revenue , variety (cybernetics) , great recession , capital (architecture) , federal budget , capital income , economic policy , monetary economics , public economics , macroeconomics , finance , labour economics , tax reform , international taxation , history , archaeology , algorithm , artificial intelligence , environmental engineering , computer science , fiscal year , engineering
This paper analyzes the recent experience with state budget deficits in the United States, with an in-depth analysis of the California experience. Compared to prior recessions, states were slower to make adjustments in taxes and spending this time. The paper explores a variety of reasons for this difference including changes in the legal, political, and institutional environments, the unusual increase in capital gains revenue during the boom preceding the recession, and the inherent difficulties in forecasting revenues, particularly those derived from capital income. As the case study from California illustrates, states made long term commitments from temporary revenue sources and were required to make budgetary decisions in the face of very incomplete information about current and projected tax receipts.