Are state governments able to mitigate the effect of recession on their finances? According to Global Insight's recent forecast, a recession seems probable for most state economies in 2008. Since a recession means a slower economic growth, reduced personal income, and declines in jobs, it seems reasonable that state governments would take measures to try to mitigate the effect of recession on their fiscal performance.
But are the economic managers of state governments successful in such efforts? How does recession increase fiscal stress on state economy?
We prepared a simple analysis of fiscal and macroeconomic data on state economies to investigate these questions. We examined whether state government finances worsened during recession periods; how severely they were affected; and whether the size of the state governments was a factor. Our analysis of the 2001 recession shows that there was indeed significant fiscal hardship for the state economies.
The following table shows that the tax–to-personal income ratio declined for most states in 2002 as compared to the year 2000. This indicates that taxes either grew slower than personal income over this period, or declined more quickly. Problems were not limited to taxes, however; overall state finances were adversely affected by the 2001 recession, as can be seen by the large declines in revenue-to-GSP ratios . Both counts indicate fiscal stress for state economies.
The data also reveal that larger governments had proportionally larger fiscal stress. The states of Alaska, New Mexico, Wyoming, and Oregon, for example, stand out in this category. The relative size of the state government was measured by using an Expenditure-to-GSP ratio for each state's economy. Thus, despite any measures that the state governments may have taken, almost all state finances were adversely affected due to recession.
|
Fiscal Performance of State Economies During Recession |
|
|
Values in 2000 |
Change between 2000 to 2002 |
|
Expenditure/GSP |
Tax/P. Income |
Tax/P. Income |
Revenue/GSP |
Expenditure/GSP |
Alaska |
24.5% |
8.0% |
-2.9% |
-8.6% |
0.9% |
West Virginia |
18.2% |
8.5% |
-0.3% |
0.5% |
2.7% |
Vermont |
18.1% |
9.0% |
-0.6% |
-0.7% |
-0.1% |
Montana |
17.4% |
7.1% |
-0.7% |
-2.1% |
0.7% |
New Mexico |
17.2% |
9.7% |
-1.8% |
-2.4% |
2.1% |
Mississippi |
17.1% |
7.9% |
-0.3% |
-1.3% |
1.6% |
Hawaii |
16.4% |
10.0% |
-0.5% |
-2.9% |
0.7% |
North Dakota |
16.1% |
7.3% |
-0.5% |
-4.2% |
-0.9% |
Maine |
15.3% |
8.1% |
-0.7% |
-0.6% |
0.9% |
Wyoming |
14.7% |
7.5% |
-0.2% |
-11.1% |
0.3% |
South Carolina |
14.4% |
6.6% |
-0.6% |
0.3% |
2.0% |
Arkansas |
14.4% |
8.4% |
-0.2% |
-0.9% |
1.6% |
Oregon |
14.0% |
6.3% |
-1.0% |
-4.2% |
1.4% |
Kentucky |
14.0% |
7.9% |
0.0% |
-3.4% |
1.2% |
Alabama |
13.9% |
6.3% |
-0.7% |
-2.1% |
0.7% |
Rhode Island |
13.8% |
7.0% |
-0.6% |
-2.6% |
1.8% |
Wisconsin |
13.0% |
8.0% |
-0.7% |
-2.7% |
1.2% |
Idaho |
12.8% |
8.0% |
-1.3% |
-2.9% |
1.4% |
Utah |
12.7% |
7.6% |
-0.9% |
-1.1% |
1.2% |
Iowa |
12.7% |
6.7% |
-0.7% |
0.4% |
0.4% |
Michigan |
12.7% |
7.7% |
-0.3% |
-0.5% |
1.3% |
Minnesota |
12.6% |
8.6% |
-0.5% |
-2.8% |
0.8% |
Louisiana |
12.6% |
6.6% |
-0.1% |
-0.2% |
0.8% |
New York |
12.5% |
6.6% |
-0.3% |
-1.3% |
2.0% |
Pennsylvania |
12.2% |
6.2% |
-0.3% |
-2.1% |
0.8% |
Ohio |
12.0% |
6.2% |
-0.1% |
-3.6% |
1.7% |
Oklahoma |
11.8% |
7.3% |
-0.7% |
-0.3% |
3.3% |
Washington |
11.7% |
6.7% |
-0.3% |
-0.9% |
1.5% |
California |
11.6% |
8.1% |
-1.4% |
-1.3% |
2.2% |
Kansas |
11.0% |
6.6% |
-0.5% |
-0.3% |
0.8% |
North Carolina |
10.8% |
7.1% |
-0.3% |
-2.2% |
0.4% |
Maryland |
10.7% |
5.8% |
-0.4% |
-1.7% |
0.7% |
Massachusetts |
10.7% |
7.1% |
-1.1% |
-1.7% |
0.8% |
Indiana |
10.4% |
6.1% |
0.0% |
0.1% |
0.4% |
Connecticut |
10.4% |
7.2% |
-1.0% |
-0.8% |
1.7% |
Nebraska |
10.4% |
6.4% |
-0.2% |
-0.1% |
0.5% |
South Dakota |
10.4% |
4.9% |
-0.1% |
-3.5% |
0.1% |
Arizona |
10.3% |
6.2% |
-0.3% |
0.0% |
0.5% |
Delaware |
10.2% |
8.7% |
-0.7% |
-2.1% |
0.1% |
New Jersey |
10.1% |
5.8% |
-0.2% |
-2.5% |
1.2% |
New Hampshire |
10.0% |
4.3% |
0.2% |
-0.7% |
0.4% |
Missouri |
9.8% |
5.7% |
-0.3% |
-0.9% |
1.3% |
Tennessee |
9.6% |
5.4% |
-0.2% |
-0.5% |
0.8% |
Florida |
9.6% |
5.4% |
-0.2% |
-0.8% |
0.3% |
Virginia |
9.3% |
5.9% |
-0.6% |
-1.2% |
0.5% |
Illinois |
8.9% |
5.8% |
-0.4% |
-2.1% |
1.2% |
Georgia |
8.5% |
6.1% |
-0.6% |
-0.7% |
1.7% |
Texas |
8.3% |
4.8% |
-0.3% |
-0.6% |
0.6% |
Nevada |
8.2% |
6.2% |
-0.2% |
-0.2% |
0.9% |
Colorado |
8.1% |
5.1% |
-0.8% |
-4.8% |
1.4% |
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25/11/2006| |
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23/11/2006| |
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28/10/2006| |
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14/10/2006| |
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23/09/2006| |
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30/08/2006| |
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30/07/2006| |
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30/07/2006| |
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27/07/2006| |
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27/07/2006| |
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21/07/2006| |
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18/07/2006| |
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29/06/2006| |
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18/02/2006| |
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29/01/2006| |
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23/09/2005| |
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