44 state economy and federal stimulus activities, are more likely to have an impact on the
immediate fiscal stress levels. In addition, the timing of fiscal stress responses may not be soon enough to counteract current levels of fiscal stress. The hypotheses below
differentiate between the short-term and long-term effects of state responses to fiscal stress.
H
6
: The short-term effect of state responses e.g. tax increases, expenditure cuts, rainy day fund use on fiscal stress will be minimal.
H
7
: The long-term effects of state responses e.g. tax increases, expenditure cuts, and rainy day fund use on fiscal stress will differ.
H
7.1
: Tax increases andor expenditure reductions will, in the long-term, reduce fiscal stress.
H
7.2
: Rainy day fund use will increase fiscal stress in the long-term.
2.7 Conclusion
Rubin 1990 encourages budget researchers to see what is in front of them and to begin theorizing from what is there. In this analysis, the focus is on what occurs in
practice and how to better present this in the academic literature. Despite this practical focus, this research will have implications for the theoretical literature discussed above;
specifically do patterns emerge in line with incrementalism, punctuated equilibrium or cutback management theory predictions? And what role do institutions play in how states
respond to resource constraints?
45
CHAPTER 3 FISCAL STRESS: DEFINITIONS AND MEASURES
In order to answer the questions at the core of this analysis, a reliable and valid measure of fiscal stress is needed. To begin, this chapter reviews the definitions of key
terms: financial condition, fiscal stress, and fiscal crisis. After defining these terms, this chapter explores the evolution of fiscal stress measures. The most used state fiscal stress
measures are identified and assessed on their comparability across years and between states as well as their ability to express the definition of fiscal stress.
3.1 Definitions of Financial Condition, Fiscal Stress and Fiscal Crisis
Many terms – fiscal stress, fiscal distress, poor fiscal health, poor financial condition, and weak fiscal condition – are used to describe the predicament of states and
municipalities dealing with economic difficulties Wang et al 2007; Rubin and Willoughby 2009; Levine et al 1981a; Stonecash and McAfee 1981. In some instances
within both academic research and practitioner-oriented guidance, these terms are treated as synonyms Hendrick 2004; New York State Comptroller’s Office 2006. In fact, no
definition of fiscal stress is universally accepted. Scholars often create their own definition to accommodate their research focus or they may refine a definition used in
prior research Jimenez 2009; Rubin and Willoughby 2009; Sobel and Holcombe 1996a; Maag and Merriman 2007; Alm et al 1993; Rubin 1982.
Definitions of related terms such as fiscal condition, financial condition, and fiscal health are also ambiguous in the current literature. An illustrative example of the
imprecision evident in these literatures is provided by Wang et al 2007. In their review of the literature about public financial condition, the authors only use the term financial
condition; however, in their effort to accurately represent the original language of the
