Economic Analysis of Effects of Business Cycles on the Economy of Cities: The Impact of Business Cycles and Inflation on the Finances of State and Local Governments

摘要

This paper explains how inflation and business cycles affect State and local government budgets. It attempts to measure the extent to which such impacts materialized over the decade ending in 1983. The pattern of United States economic growth from 1970 to 1984 is characterized, and attention focuses on State and local government revenue systems' responses to inflation and on the impact of recovery on State and local governments. Past studies on the effects of inflation and recession are reviewed, the fiscal impacts of inflation are considered, and the impact of the business cycle on large city finances is analyzed. Finally, the question of whether State and local government fiscal actions are procyclical or countercyclical is addressed, and the answer is determined to depend upon whether the discretionaryreactions by these jurisdictions are offsetting or reinforcing. It is concludedthat the discretionary procyclical actions in the 1973 - 75 recession were a response to both the recession and to a high rate of inflation. The policy actions taken -- tax increases and expenditure cuts -- were sufficient to offset the automatic cyclical impacts. As the State and local sector entered into the 1983 expansion, discretionary actions were dominated by countercyclicalincreases in taxes and continued restraint on expenditures contributing to the unusually large surplus. Ten tables and 49 references are included.