Morning Must-Read: Menzie Chinn: Implications of Procyclical Fiscal Policy: Wisconsin Edition

Menzie Chinn: Implications of Procyclical Fiscal Policy: Wisconsin Edition: “Recent actions have pushed the balances…

…in the 2015-17 biennium into deficit. But even the news for the 2013-15 biennium has turned dark. By June 2014, it was apparent that there were both tax revenue shortfalls and outlays in excess of planned…. The shortfall in revenues is not surprising. The administration has implemented a contractionary fiscal policy…. My predictions of what would occur have been borne out in actual developments in aggregate economic activity. Wisconsin has experienced substantially slower growth than it otherwise would have…. Note that a regional comparator, Minnesota, that embarked upon a different fiscal path has experienced substantially faster growth, as documented above. To sum up: A procyclical fiscal policy has been undertaken in the past three and a half years, with predictably counterproductive results. The depressed level of economic activity has resulted in a revenue shortfall.