Worried about policy uncertainty? Take a look at the states
A common theory, embraced by the Romney campaign, argues that the economy is suffering due to an excess of policy uncertainty. Businesses, the theory goes, don’t know what government tax or regulatory policy is going to be, and so hold off on buying goods and hiring workers until they have more information. There’s not a whole lot of evidence that this is happening at the federal level. But a new paper suggests it could be an issue for states and, in particular, for state taxes.
The University of Michigan’s Nathan Seegert took a look at how state taxes and revenues have changed since the 1950s, and found that they’ve become much more volatile over time.* And because states are required to have balanced budgets, this has lead to a lot of volatility in state spending as well: