INTERTEMPORAL ANALYSIS OF STATE AND LOCAL-GOVERNMENT SPENDING - THEORY AND TESTS

Do state and local governments smooth their consumption spending acros s years, or is their spending driven mainly by contemporaneous changes in resources? We design a test to determine which view of state and l ocal spending is more consistent with the data. We find that state and local spending is determined primarily by current (as opposed to perm anent) resources. That is, despite their apparent ability to skirt bal anced budget laws, states and localities do not typically smooth their expenditures over time. (C) 1994 Academic Press, Inc.