Working Paper

Walking a tightrope: are U. S. state and local governments on a fiscally sustainable path?

Abstract: This paper develops a new measure of state and local fiscal sustainability called the \"trend gap,\" which is based on socioeconomic and other fundamental factors and removes the short-term influence of the business cycle. The paper estimates the trend gap and finds that the nationwide per capita trend gap has been on a growing path over the past three decades, a different conclusion than found in previous studies. Social insurance and income maintenance programs have played a major role in the growth of the trend gap, while pension and other post-employment benefits (OPEB) plans have become increasingly important in driving it up. In addition, there are large and growing disparities in the trend gap across states.

Keywords: fiscal sustainability; state and local fiscal trends;

JEL Classification: H4; H7;

Bibliographic Information

Provider: Federal Reserve Bank of Boston

Part of Series: Working Papers

Publication Date: 2013-12-01

Number: 13-18

Pages: 45 pages