August 13, 2008

While this is a proper first step, the ranking of the state’s changes in fiscal policy is not enough. First, there is no reason to expect that states will have the same response coefficient. The history of previous tax actions may affect the state’s economic responses. Similarly, it is possible that the state’s current pace of economic activity may be in part affected by the recent past. In other words, a state’s momentum may matter. Our methodology attempts to correct some of these deficiencies.

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