Are the budgets of state and local governments destabilizing? A six country comparison

Abstract

This study uses estimates of the annual impact of changes in state and local government budgets during the period 1955–1965 for six countries: Belgium, France, Germany, Italy, the United Kingdom, and the United States. These, in turn, are compared with the GNP growth rate in order to evaluate the contribution to short-run stabilization. The conclusions are that the year-to-year impact of the state and local sector was substantially smaller than that of the central government; and this is true for countries like Germany and the United States, which have large state-local sectors, as well as for countries like Belgium and France, where the state-local sector is quite small. Also, the impact tends not to vary over the cycle as much as that of central government. Germany was the country where budgetary change made the largest contribution to economic stability, but the effects in all other countries except Belgium were also positive (albeit to a much smaller degree).