Fiscal Hazard in Virignia

Some business groups in Virginia are worried. If the Assembly accepts $125 million in federal aid for jobless benefits, it may lead to a permanent increase in unemployment benefits. And the costs will be passed on to business via increased taxes.

One of the fiscal hazards of stimulus package is that once federal funding is awarded, it may result in a permanently higher level of spending for the state – to borrow from Robert Higgs – a sort of intergovernmental aid ratchet effect.

Unless states are circumspect in how they use stimulus dollars and that includes thinking about how they will budget when the funds disappear, in addition to subsidizing bad fiscal practices in states with weak finances and economies, the stimulus may give healthy states a serious case of revenue addiction.

Addendum: Links fixed.