Antirecession Assistance:

An Evaluation

PAD-78-20: Published: Nov 29, 1977. Publicly Released: Nov 29, 1977.

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Title II of the Public Works Employment Act of 1976, known as the antirecession assistance or countercyclical program, represents one component of the Federal Government's response to severe downturns in economic activity. The aim of the program is to offset destabilizing actions of State and local governments during recessions and, in particular, to maintain basic services customarily provided with emphasis on the wages and salaries of public employees. Since local governments generally experience less budgetary disruption during a recession than State governments because their revenue sources and expenditures are less sensitive to economic conditions than State revenues and expenditures, the present allocation of two-thirds of the funds to local governments and one-third the State governments may not be appropriate for effective targeting of antirecession aid.

The present antirecession assistance program is not a particularly effective tool for stimulation of the economy during a downturn, and there is serious disagreement over the sensitivity to cyclical changes of the program's trigger. Although recession does not necessarily lead to State and local destabilizing actions, the combination of recession and inflation may provoke a response from those governments that runs counter to Federal fiscal policy. The antirecession assistance allocation does roughly correspond to the incidence of secular decline in a jurisdiction, but if it is the intent of the Congress to provide assistance to meet such problems, a formula more specifically tailored to secular decline could be devised.

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