Policy Documents

Fiscal Realities for The States: Economic Causes and Effects

Dr. Roger E. Brinner and Dr. Joyce Brinner –
September 1, 2007

The US economy has grown well since 2001, substantially improving state fiscal situations. The economy is the dominant short-to-medium run cause of state-local revenue growth, since taxes are keyed to volatile business cycle swings in personal income, consumer spending, home values, and business profits. The economy also exerts substantial influence on state-local expenditure growth, because the prices for goods and the wages for employees are partially beyond government control. But, the local economy also shows large and fundamental effects of state-local policy decisions. Taxes, regulations, and public programs strongly affect the attractiveness of one state versus another as a location for building a business or spending personal income.