Factors contributing to differences in state economic outcomes over the Great Recession

This study examines how the duration and depth of the Great Recession (measured by employment) differed among the states.  The Great Recession unevenly impacted states.  As a measure of the impact we use two employment measures: duration of the recession as measured by the number of months for the state employment to return to its pre-recession level.  As an alternative measure we use the duration of recession in months as measured by the business cycle index of the Philadelphia Federal Reserve.  As a measure of the severity we use the amount of job loss from the beginning of the recession to its lowest point measured by the state employment series. 

The casual factors examined include state revenue structure, employment structure, political party affiliation, tax equity, tax and expenditure limitations, and prior fiscal conditions. For state tax data we use the series for State Government Tax Collections from the Census Bureau for 2007 to present.  The data are used to construct estimates of tax growth, tax volatility and classify state tax portfolios by their position relative to an estimated efficient portfolio frontier. To control for influence of political party structure we use data on political party affiliation of the dominant party in the senate and the assembly for each state and the political party of the governor in 2007 and in 2014.  To control for the influence of legislative imposed constraints we include variables for state tax and expenditure limitations imposed by the state legislature. To control for employment structure we use annual state level employment data seasonally adjusted by selected industry sector for 2007 to most recent yearn 2007 and in 2014 from the Bureau of Labor Statistics.  To control for prior fiscal conditions we include variables for state population and state income from the US Census Bureau.

This study is preliminary.  The research hypothesis is that the composition of the state revenue portfolio matters and that that the duration and depth of the recession correlates with the growth and stability characteristics of the tax portfolio.  It is expected that after controlling for relevant economic and political factors that state portfolios closer to the efficiency frontier correlate with more stable employment experiences over the Great Recession.