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Chicago Fed Letter, No. 55, March 1992
Caution: State and Local Governments Brake for Recessions
Continued sluggishness in the U.S. economy has prompted widespread interest in federal proposals aimed at 'Jump starting" the economy. These actions are designed to use the countercyclical tools available to government, such as tax cuts and spending hikes, to spur economic growth through fiscal policy. However, these countercyclical measures are being proposed on the heels of a record increase in state and local taxes. To what extent will the stimulative effects of federal actions be counteracted by recessionary adjustments being made by state and local governments?
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