MEASURING THE AGGREGATE HIGH-EMPLOYMENT BUDGET FOR STATE AND LOCAL GOVERNMENTS

This paper offers a quantitative assessment of the relationship betwee n the aggregate budget for the state and local government sector and t he business cycle. We develop a state and local analog to the federal high-employment budget (HEB) to indicate whether the sector's budget i s ''structurally sound'' and whether the sector is providing fiscal st imulus or restraint. Our results suggest that while cyclical forces ha ve exacerbated the pressures on states and localities in recent years, these effects have been dominated by a fundamental imbalance between the sector's spending programs and its tax structure.