South By North Strategies, Ltd.

From the Real Times Economics blog of The Wall Street Journal …

State Budgets: Jeffrey Clemens and Stephen Miran, both Ph.D. candidates at Harvard University’s economics department, measure the effects of cuts on state income and employment. “Our estimates suggest that $1 of mid-year budget cuts would reduce state income by around $1.70, and that $25,000 in cuts would result in the loss of a job. To the extent that federal aid to states prevents budget cuts of a similar nature, we would expect this aid to have similar effects on state economies. Although there may be differences between the programs impacted by budget rules and the programs impacted by federal aid to states, the evidence suggests that this type of fiscal policy is unambiguously expansionary.” They note, however, that it is tough to gauge the impact of stimulus spending. “The principal difficulty is that these cuts apply to programs and spending lines that previously existed and are presumably better planned than hastily organized stimulus programs which must quickly squeeze through administrative bottlenecks. Additionally, other spending which gets tagged as ’stimulus spending’ might more accurately be referred to as ’safety net spending’ and may have very different effects, in particular with regards to employment.”