Inteligencia y Seguridad Frente Externo En Profundidad Economia y Finanzas Transparencia
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13/03/2008 | The Effects of Recession on State Governments

Global Insight Staff

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%

Global Insight (Reino Unido)

 



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Center for the Study of the Presidency
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