Working Paper: NBER ID: w18930
Authors: Gerald Carlino; Robert P. Inman
Abstract: Using a sample of the 48 mainland U.S. states for the period 1973-2009, we study the ability of U.S. states to expand own state employment through the use of state deficit policies. The analysis allows for the facts that U.S. states are part of a wider monetary and economic union with free factor mobility across all states and that state residents and firms may purchase goods from "neighboring" states. Those purchases may generate economic spillovers across neighbors. Estimates suggest that states can increase own state employment by increasing their own deficits. There is evidence of spillovers to employment in neighboring states defined by common cyclical patterns among state economies. For large states, aggregate spillovers to its economic neighbors are approximately two-thirds of own state job growth. Because of significant spillovers and possible incentives to free-ride, there is a potential case to actively coordinate (i.e., centralize) the management of stabilization policies. Finally, job effects of a temporary increase in state own deficits persist for at most one to two years and there is evidence of negative job effects when these deficits are scheduled for repayment.
Keywords: State Deficits; Employment Growth; Economic Spillovers; Fiscal Policy; Economic Coordination
JEL Codes: E62; H74; H77; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| state own deficits (H62) | job growth (O49) |
| job growth in neighboring states (J69) | job growth (O49) |
| scheduled debt repayments (G32) | job growth (O49) |
| state own deficits (H62) | job growth in neighboring states (J69) |