Levinson (1998) finds that large states with lenient balanced budget rules experience less cyclical variability. He concludes that state fiscal policy works. However, Levinson's finding is not robust to alternative methods of detrending the data. In addition, the 1984 Advisory Commission on Intergovernmental Relations (ACIR) analysis of state budget rules used by Levinson (and other researchers) is of questionable merit. Reestimation of Levinson's regressions using budget rule classifications in a U.S. General Accounting Office (GAO) study reverses his result. The results from this study suggest that existing empirical work using the ACIR index should be revisited.
Advisory Commission on Intergovernmental Relations.1987. Fiscal discipline in the federal system: National reform and the experience of the states. Washington, DC: ACIR.
2.
Alt, James E., and Robert C. Lowry .1994. Divided government, fiscal institutions, and budget deficits: Evidence from the states. American Political Science Review88 (4): 811-28.
3.
Auerbach, Alan J.2002. Is there a role for discretionary fiscal policy? In Rethinking Stabilization Policy, 109-50. Kansas City, MO: Federal Reserve Bank of Kansas City.
4.
Besley, Timothy, and Anne Case.2003. Political institutions and policy choices: Evidence from the United States. Journal of Economic Literature41 (1): 7-73.
5.
Blanchard, Olivier, and Roberto Perotti.2002. An empirical characterization of the dynamic effects of changes in government spending and taxes on output. Quarterly Journal of Economics117 (4): 1329-68.
6.
Bohn, Henning, and Robert P. Inman .1996. Balanced budget rules and public deficits: Evidence from the states. Carnegie-Rochester Conference Series on Public Policy45 (1):13-76.
7.
Council of State Governments. Various years. The book of the states 26 (1989-1990), 28 (1990-1991), 30 (1994-1995), and 31 (1996-1997). Lexington, KY: Council of State Governments.
8.
Crain, W., Mark.2003. Volatile states: Institutions, policy, and the performance of American state economies. Ann Arbor: University of Michigan Press.
9.
Crone, Theodore M.2003. The long and short of it: Recent trends and cycles in the third district states. Business Review (3rd quarter): 29-37. Philadelphia, PA: Federal Reserve Bank of Philadelphia.
10.
Dawson, John W., and E. Frank Stephenson .1997. The link between volatility and growth: Evidence from the states. Economics Letters55 (3): 365-9.
11.
Diebold, Francis X., and Glenn D. Rudebusch .2001. Five questions about business cycles. Economic Review1-15. San Francisco, CA: Federal Reserve Bank of San Francisco.
12.
Eichengreen, Barry, and Tamin Bayoumi.1994. The political economy of fiscal restrictions: Implications for Europe from the United States. European Economic Review38 (3-4): 783-91.
13.
———. 1995. Restraining yourself: The implications of fiscal rules for economic stabilization. IMF Staff Papers42 (1): 32-48.
14.
Fatás, Antonio, and Ilian Mihov.2006. The macroeconomic effects of fiscal rules in the US States . Journal of Public Economics90 (1-2): 101-17.
15.
Gramlich, Edward M.1997. Subnational fiscal policy. In Financing federal systems: The selected essays of Edward M. Gramlich, edited by E. Gramlich, 173-80. Northampton, MA: Edward Elgar.
16.
Hodrick, Robert J., and Edward C. Prescott .1997. Postwar U.S. business cycles: An empirical investigation. Journal of Money, Credit and Banking29 (1): 1-16.
17.
Jones, John B.2002. Has fiscal policy helped stabilize the postwar U.S. economy?Journal of Monetary Economics49 (4): 709-46.
18.
Krol, Robert.1997. A survey of the impact of budget rules on state taxation, spending, and debt. Cato Journal16 (3): 295-307.
19.
Leamer, Edward E.1983. Let's take the con out of econometrics. American Economic Review73 (1): 31-43.
20.
Levinson, Arik.1998. Balanced budgets and business cycles: Evidence from the states. National Tax Journal51 (4): 715-32.
21.
Oates, Wallace E.1972. Fiscal federalism. New York: Harcourt Brace.
22.
Poterba, James M.1994. State responses to fiscal crises: The effects of budgetary institutions and politics. Journal of Political Economy102 (4): 799-821.
23.
———. 1995. Balanced budget rules and fiscal policy: Evidence from the states. National Tax Journal48 (3): 329-36.
24.
———. 1997. Do budget rules work? In Fiscal Policy , edited by Alan J. Auerbach, 53-86. Cambridge, MA: MIT Press.
25.
Ramey, Garey, and Valerie A. Ramey .1995. Cross country evidence on the link between volatility and growth. American Economic Review85 (5): 1138-51.
26.
Romer, David.1996. Advanced macroeconomics. New York: McGraw-Hill.
27.
Sorensen, Bent E., Lisa Wu, and Ored Yosha.2001. Output fluctuations and fiscal policy: U.S. state and local governments 1978-1994. European Economic Review47 (7): 1271-1310.
28.
U.S. General Accounting Office.1993. Balanced budget requirements: State experiences and implications for the federal government. Briefing Report to the Chairman, Committee on the Budget, House of Representatives, GAO/AFMD-93-58BR. Washington, DC.
29.
White, Halbert.1980. A heteroskedastic-consistent covariance matrix estimator and a direct test of heteroskedasticity. Econometrica48 (4): 827-38.
