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State and Local Budgets during Business Contractions


The steepness of the second-quarter decline in real economic activity and the prospects for a slow recovery from the current recession with little relief from inflation have raised concerns about the financial health of state and local governments.

The steepness of the second-quarter decline in real economic activity and the prospects for a slow recovery from the current recession with little relief from inflation have raised concerns about the financial health of state and local governments. To what extent will the budgets of state and local governments be affected by the business downturn, and what type of fiscal adjustments will be forthcoming in response to a sluggish economy? The answers are important, partially because of the large relative size of the state and local government sector. Total state and local expenditures now equal about 14 percent of GNP, increased substantially from less than 8 percent in 1950. Because of its relative size, this sector may partially cushion or exacerbate business-cycle swings


Suggested citation: Humpage, Owen F., 1980. “State and Local Budgets during Business Contractions,” Federal Reserve Bank of Cleveland, Economic Commentary, 08.25.1980.

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