This paper characterizes the dynamic effects of shocks in government spending and taxes on U. S. activity in the postwar period. It does so by using a mixed structural VAR/event study approach. Identi cation is achieved by using institutional information about the tax and transfer systems to identify the automatic response of taxes and spending to activity, and, by implication, to infer scal shocks. The results consistently show positive government spending shocks as having a positive effect on output, and positive tax shocks as having a negative effect. One result has a distinctly nonstandard avor: both increases in taxes and increases in government spending have a strong negative effect on investment spending.

We interpret fluctuations in GNP and unemployment as due to two types ofdisturbances: disturbances that have a permanent effect on output and disturbance.s that do not. We interpret the first as supply disturbances, the second as demand disturbances.We find that demand disturbances have a hump shaped effect on both output and unem ployment; the effect peaks after a year and vanishes after two to five years. Up to a scale factor, the dynamic effect on unemployment of demand disturbances is a mirror image of that on output. The effect of supply disturbances on output increases steadily over time, to reach a peak after two years and a plateau after five years. 'Favorab1e supply disturbances may initially increase unem ployment. This is followed by a decline in unemployment, with a slow return over time to its original value.While this dynamic characterization is fairly sharp, the data are not as specific as to the relative contributions of demand and supply disturbances to output fluctuations. We find that the time series of demand-determined output fluctuations has peaks and troughs which coincide with most of the NBER troughs and peaks. But variance decompositions of output at various horizons giving the respective contributions of supply and demand disturbances are not precisely estimated. For instance, at a forecast horizon of four quarters, we find that, under alternative assumptions, the contribution of demand disturbances ranges from 40 to over 95 per cent.

IN 1987, the unemployment rate in Massachusetts averaged 3.2 percent, three percentage points below the national rate. Only four years later, in 1991, it stood at 9.0 percent, more than two points above the national rate. For firms taking investment decisions and for unemployed workers thinking about relocating, the obvious question is whether and when things will return to normal in Massachusetts. This is the issue that we take up in our paper. However, instead of looking only at Massachusetts, we examine the general features of regional booms and slumps, studying the behavior of U.S. states over the last 40 years. We attempt to answer four questions. When a typical U.S. state over the postwar period has been affected by an adverse shock to employment, how has it adjusted? Did wages decline relative to the rest of the nation? Were otherjobs created to replace those jobs destroyed by the shock? Or did workers move out of the state? Our interest in these questions extends beyond regional economics. Blocs of countries, notably those in the European Community, are increasingly eliminating barriers to the mobility of goods and factors and moving toward adopting a common currency. Once these institutional changes are in place, economic interactions among these countries will more closely resemble those of U.S. states. This paper offers at least a We thank Rachel Friedberg, Jae Woo Lee, and especially Bill Miracky for research assistance. We thank Timothy Bartik,

have improved this paper. I thank NSF for financial assistance. The research reported here is part of the NBER's research program in Economic Fluctuations and project in Government Budget. Any opinions expressed are those of the author and not those of the National Bureau of Economic Research.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Notes: Center Discussion Papers are preliminary materials circulated to stimulate discussion and critical comments. Terms of use: Documents in EconStor may CONVERGENCE ACROSS STATES AND REGIONS AbstractIn this paper we examine the growth and dispersion of personal income in U.S. states and regions since 1880 and relate the patterns for individual states to the behavior of regions. Then we analyze the interplay between net migration and economic growth. We study the evolution of gross state product since 1963 and relate the behavior of aggregate product to productivity in eight major sectors. The overall evidence weighs heavily in favor of convergence: poor states tend to grow faster in terms of per capita income and product and within sectors as well as for state aggregates. The rate of convergence is, however, not rapid: the gap between the typical poor and rich state diminishes at roughly 2% per year.We apply the same framework to patterns of convergence across 73 regions of seven European countries since 1950. The process of convergence within European countries is similar to that for the UnitedStates. In particular, the rate of convergence is again about 2% per year.KEY WORDS: Convergence, Gniwth, Migration, Regional EconomicsAn important economic question is whether poor countries or regions tend to converge toward rich ones. We want to know, for example, whether the poor countries of Africa, South Asia, and Latin America will grow faster than the developed countries, whether southern Italy will become like the north, whether and how fast the eastern regions of Germany will attain the prosperity of the western regions, and-· -in an historical context-how the American south became nearly as well off as the north.Although some economic theories predict convergence, the empirical evidence has been a subject of debate. We add to the evidence in this study by extending our previous analysis of economic growth across the U.S. states (Barro and Sala-i-Martin [1990]). We examine the growth and dispersion of personal income since 1880 and relate the patterns for individual states to the behavior of regions. Then we analyze the interplay between net migration and economic growth. We study the evolution of gross state product since 1963 and relate the behavior of aggregate product to productivity in eight major sectors. The overall evidence weighs heavily in favor of convergence: poor states tend to grow faster in terms of per capita income and product and with...

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Two key facts about European unemployment must be explained: the rise in unemployment since the 1960s, and the heterogeneity of individual country experiences. While adverse shocks can potentially explain much of the rise in unemployment, there is insufficient heterogeneity in these shocks to explain cross-country differences. Alternatively, while explanations focusing on labor market institutions explain cross-country differences explain current heterogeneity well, many of these institutions pre-date the rise in unemployment. Based on a panel of institutions and shocks for 20 OECD nations since 1960, we find that the interaction between shocks and institutions is crucial to explaining both stylized facts. We test two specifications, and each offers significant support for our interactions hypothesis. The first speculation assumes that there are common but unobservable shocks across countries, and that these shocks have a larger and more persistent effect in countries with poor labor market institutions. The second constructs series for the macro shocks, and again finds evidence that the same size shock has differential effects on unemployment when labor market institutions differ. We interpret this as suggesting that institutions determine the relevance of the unemployed to wage-setting, thereby determining the evolution of equilibrium unemployment rates following a shock.

This paper characterizes the dynamic effects of shocks in government spending and taxes on U. S. activity in the postwar period. It does so by using a mixed structural VAR/event study approach. Identi cation is achieved by using institutional information about the tax and transfer systems to identify the automatic response of taxes and spending to activity, and, by implication, to infer scal shocks. The results consistently show positive government spending shocks as having a positive effect on output, and positive tax shocks as having a negative effect. One result has a distinctly nonstandard avor: both increases in taxes and increases in government spending have a strong negative effect on investment spending.