Research AreasState and Local Economies
Globalization & Macroeconomics

PERI's research on state and local economies examines the policy and budgetary choices that face each of the six New England states and the region as a whole, and seeks approaches that can maximize fairness, decent living standards, and stability over the long time.

The Tax Adequacy Problem in the New England States: What Can Be Done About It?

October 2014 -- The fiscal crisis of state governments precipitated by the Great Recession and the economic hard times that followed have thrown the inadequacy of state tax revenues into sharp relief. But the tax adequacy problem of state governments both predates the current fiscal crisis and will persist even as the economic trauma induced by the Great Recession subsides. This paper, by John Miller and Josh Mason, examines the tax adequacy problem — the failure of the tax base of state governments to generate revenues that keep pace with the growth of their economies — faced by the six New England state governments.

>> Read "The Tax Adequacy Problem in the New England States: What Can Be Done About It?"

The Role of Early Childhood Education in Economic Development

January 2013 -- What role does early childhood education play in advancing economic development? Arthur MacEwan argues that by supporting universal early childhood education, state governments can provide both a long-run foundation for economic development and an immediate boost to their states’ economic progress. Moreover, they will be providing an important service to families and strengthening equality of opportunity. MacEwan examines the cognitive and social gains from early childhood education programs, the economic payoffs for individuals and society, and the trade-offs between universal programs and programs targeted at low-income families.

>> Download "Early Childhood Education as an Essential Component of Economic Development"

Can State Policies Work Together to Build a Decent Living Standard?

May 2012 -- The minimum wage and Earned Income Tax Credit are frequently presented as substitutes, or even in competition with one another, because they offer distinct approaches toward improving living standards for low-income workers and their families. Jeannette Wicks-Lim and Robert Pollin put forth an alternative view: that these policies can work in complementary ways, generating greater benefits for low-income workers when they operate in tandem at a high level. Wicks-Lim and Pollin reach this conclusion through an in depth examination of EITC and minimum wage policies at the level of state government.

>> Download “Making Work Pay: Combining the Benefits of the Earned Income Tax Credit and the Minimum Wage”

Raising State Revenues by Taxing High-Income Households

March 2012 -- In recent years, some states have responded to the collapse in tax revenue following the Great Recession by turning to tax increases targeted at high-income households. The revenue from such taxes can help sustain public spending on vital public services. Jeffrey Thompson looks at decades of evidence and clearly finds that such income taxes effectively raise substantial revenue, without risk of harm to the state’s economy. He argues that wealthy households have reaped vast benefits from state and federal tax codes for decades now, and to look to them now for much-needed revenue is sound policy.

>> Download "Raising Revenue from High-Income Households: Should States Continue to Place the Lowest Tax Rates on Those with the Highest Incomes?"
>> Download the five-page Research Brief

Alternatives to Austerity for State and Local Governments

June 2011 -- The Great Recession has created fiscal crises for state and local governments. In response, leaders of both parties are advancing agendas to downsize state and local governments by cutting taxes, slashing wages and benefits for public workers, or even selling off state-owned facilities. Robert Pollin and Jeffrey Thompson argue that these austerity policies are not the only possible responses to the crises, and propose alternative approaches that can close the budget gaps in the short term, promote a sustainable recovery, and, over the long term, help insulate state and local government budgets from the effects of recessions.

>> Download "Fighting Austerity and Reclaiming a Future for State and Local Governments"
>> Download the related New Labor Forum article by Pollin and Thompson, "State and Municipal Alternatives to Austerity"

Employment, Not Tax Rates, Drives Decisions to Move

April 2011 -- As New England continues to struggle with serious budget shortfalls, policymakers face pressure to increase taxes to replenish the coffers. Tax opponents raise the specter of families fleeing for lower-tax states. Jeffrey Thompson finds that taxes have only a very weak effect on cross-state migration. Other factors — primarily employment and family concerns — provide the reasons that families move. And when states use revenues from tax increases to create jobs, any small negative impacts from taxes are swamped by an increase in migrants attracted by those jobs.

>> Download "The Impact of Taxes on Migration in New England" or the state-specific research briefs

A Contract with Poverty in New Haven

March 2011 -- In keeping with the trend of balancing state budgets on the backs of public workers, New Haven is considering outsourcing its public school custodial services to a private firm. Outsourcing would cut the cost of services in half, saving the city $8.1 million, or 19% percent of its deficit. In “Pushing Working Families into Poverty,” Jeannette Wicks-Lim finds that the cost of that savings would be severe: the family of a custodian who continues to work in the New Haven Public Schools would simply no longer be able to make ends meet.

>> Download "Pushing Working Families into Poverty: Assessing the New Haven Plan to Privatize the Public Schools’ Custodial Services"

The Betrayal of Public Workers

February 2011 -- In this article for The Nation, Robert Pollin and Jeffrey Thompson remind us that the recession was caused by Wall Street hyper-speculation, not the pay of school teachers or firefighters, and that public workers are a driver of our economy, not a burden on it. As lawmakers attempt to allow states to declare bankruptcy, effectively canceling obligations to public employees and their pension funds, Pollin and Thompson present more appropriate routes to state fiscal health.

>> Download “The Betrayal of Public Workers”

Prioritizing Approaches to Economic Development in New England: Skills, Infrastructure, and Tax Incentives

September 2010 -- In Prioritizing Approaches to Economic Development in New England, Jeffrey Thompson provides ample evidence that infrastructure (roads, bridges, dams, energy transmission systems, drinking water, and the like) and education are effective approaches for creating jobs and generating economic growth. By necessity, infrastructure repairs employ local workers and use local materials. These activities would also meet an increasingly urgent need: evidence reviewed by Thompson shows that 40% of bridges in the region are structurally deficient; 80% of the region’s dams present significant hazard; most of our roads are in poor or mediocre condition; and our drinking water infrastructure is in need of $12 billion worth of repairs and renovations.

Thompson describes how, instead of making these investments, state policymakers are too often turning to corporate tax breaks to lure businesses to their state and public subsidies for employers who promise to hire workers in the state. These policies have been tried for decades, but Thompson presents the clear evidence that these tax subsidies don’t work to create jobs or revitalize state economies.

>> Download "Prioritizing Approaches to Economic Development in New England: Skills, Infrastructure, and Tax Incentives"

The Wage Penalty for State and Local Government Employees in New England

September 2010 -- The refrain that government workers are overpaid, and their benefits expansive, returns with each state and local budget season. In this study, "The Wage Penalty for State and Local Government Employees in New England," PERI’s Jeffrey Thompson and John Schmitt of the Center for Economic Policy Research demonstrate that in New England the reality is the opposite. While the average state or local government worker does earn higher wages than in the private sector, this is because they are, on average, older and substantially better educated. In reality, there is a wage penalty for public workers in New England of close to 3%.

>> Download "The Wage Penalty for State and Local Government Employees in New England"

State Employer Tax Credits Don’t Effectively Creat Jobs

April 2010 -- The Governors of Massachusetts, Connecticut, Rhode Island and several other states have proposed employer tax credits as measures to fight high unemployment in their states. Jeff Thompson and Heidi Garrett-Peltier present evidence that such policies, in fact, do little to increase aggregate demand, and instead only modestly reduce the after-tax cost of labor in an economy with high unemployment, falling wages, and weak demand They suggest a more effective approach to creating jobs in the states: increasing spending in labor-intensive sectors and programs that are matched by federal funds, such as Medicaid. These expenditures would be particularly effective if they were financed through temporary high-income tax increases.

>> Download “Generating Jobs through State Employer Tax Credits: Is there a Better Way?”