Abstract

The dramatic deterioration in state finances during the Great Recession raised concerns regarding government's ability to support community health and education. Because recessions differentially affect states with different tax structures, we could examine the effect of changes in state revenues on expenditures while controlling for demand-side factors that influence program utilization. We find that state revenue declines lead to short and long terms cuts in children's Medicaid benefits, and declines in elderly Medicaid enrollment. Larger cuts (nominal and proportional) in education spending versus Medicaid occurred. We suggest institutional, political, and economic constraints that may determine program cuts.

Read the full article in National Tax Journal.