Who Will Pay for Balancing the Budget?

Abstract

Alaskans will pay more and get less from state government in the 1990s. But how will the burden of spending cuts and tax increases fall on richer and poorer and urban and rural households? That depends on which policies state officials choose. Alaska faces big and growing budget deficits because the petroleum revenues that mostly paid for state government in the 1980s are steadily shrinking. When those deficits will start is uncertain, but low world oil prices are erasing the budget surplus state officials had expected as a result of the Middle East war. This paper assesses how different taxing and spending policies could affect different kinds of households. As a measure of those effects we examine relative losses in disposable household income. Budget deficits will of course have other effects on households. Some households will be hurt a lot more than others by broad economic losses and reduced government services. Alaskans who lose their jobs will obviously suffer bigger losses than we describe. But relative household income loss is a good measure of the equity of various fiscal policies. We estimate losses in disposable household income by comparing how various fiscal policies reduce state transfer pay-ments and increase state and local taxes.