TY  - JOUR
AU  - Carlino, Gerald
AU  - Inman, Robert P
TI  - Fiscal Stimulus in Economic Unions: What Role for States?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 21680
PY  - 2015
Y2  - October 2015
DO  - 10.3386/w21680
UR  - http://www.nber.org/papers/w21680
L1  - http://www.nber.org/papers/w21680.pdf
N1  - Author contact info:
Gerald Carlino
Federal Reserve Bank of Philadelphia
Research Department
Ten Independence Mall
Philadelphia, Pa 19106
E-Mail: jerry.carlino@phil.frb.org

Robert P. Inman
Department of Finance
The Wharton School
University of Pennsylvania
Philadelphia, PA  19104-6367
Tel: 215/898-8299
Fax: 215/898-6200
E-Mail: inman@wharton.upenn.edu
M1  - published as Gerald Carlino, Robert P. Inman. "Fiscal Stimulus in Economic Unions: What Role for States?," in Jeffrey R. Brown, editor, "Tax Policy and the Economy, Volume 30" University of Chicago Press (2016)

M3  - presented at "Tax Policy and the Economy", September 24, 2015
AB  - The Great Recession and the subsequent passage of the American Recovery and Reinvestment Act returned fiscal policy, and particularly the importance of state and local governments, to the center stage of macroeconomic policy-making.   This paper addresses three questions for the design of intergovernmental macroeconomic fiscal policies.  First, are such policies necessary?  Analysis of US state fiscal  policies show state deficits (in particular from tax cuts) can stimulate state economies in the short-run, but that there are significant job spillovers to neighboring states.  Second, to internalize these spillovers, what central government fiscal policies are most effective for stimulating income and job growth?  Both federal tax cuts and transfers to households and firms and intergovernmental transfers to states for lower income assistance are effective, with one and two year multipliers greater than 2.0.  Third, how are states, as politically independent agents, motivated to provide increased transfers to lower income households?  The answer is matching (price subsidy) assistance for such spending.  The intergovernmental aid is spent immediately by the states and supports assistance to those most likely to spend new transfers.
ER  -