econ 240 c lecture 13. 2 part i. ca budget crisis
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![Page 1: Econ 240 C Lecture 13. 2 Part I. CA Budget Crisis](https://reader035.vdocuments.mx/reader035/viewer/2022062714/56649d405503460f94a1a206/html5/thumbnails/1.jpg)
Econ 240 C
Lecture 13
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Part I. CA Budget Crisis
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CA Budget Crisis
What is Happening to UC?• UC Budget from the state General Fund
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UC Budget
Econ 240A Lab Four New data for Fiscal Year 2003-04 Governor’s Budget Summary 2003-04
• released January 2003• http://www.dof.ca.gov/
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UC Budget, 1968-69 through 2003-04
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CA Budget Crisis
What is happening to the CA economy?• CA personal income
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California Personal Income in Billions
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CA Budget Crisis
How is UC faring relative to the CA economy?
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UC Budget Vs. CA Personal Income, 1968-69 through 2003-04
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CA Personal Income, $B
UC
Bu
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CA Budget Crisis
What is happening to CA state Government?• General Fund Expenditures?
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CA State Government General Fund Expenditures
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CA Budget Crisis
How is CA state government General Fund expenditure faring relative to the CA economy?
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CA Size of Government Vs. CA Economy, 1968-69 through 2003-04
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Long Run Pattern Analysis
Make use of definitions: UCBudget = (UCBudget/CA Gen Fnd
Exp)*(CA Gen Fnd Exp/CA Pers Inc)* CA Pers Inc
UC Budget = UC Budget Share*Relative Size of CA Government*CA Pers Inc
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15What has happened to UC’s Share of CA General Fund
Expenditures? UC Budget Share = (UC Budget/CA Gen
Fnd Exp)
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UC's Share of the California General Fund Budget
0.00%
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CA Budget Crisis
Estimate of UC’s Budget Share for 2003-04: 4.25 % or 4.85%• will the legislature lower UC’s share?
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18What has happened to the size of California Government Expenditure Relative to Personal Income? Relative Size of CA Government = (CA
Gen Fnd Exp/CA Pers Inc)
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The Size of California Government Relative to the Economy
0.00%
1.00%
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California Political History Proposition 13
• approximately 2/3 of CA voters passed Prop. 13 on June 6, 1978 reducing property tax and shifting fiscal responsibility from the local to state level
Gann Inititiative (Prop 4)• In November 1979, the Gann initiative was
passed by the voters, limit real per capita egovernment expenditures
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CA Budget Crisis
Estimate of the relative size of the CA government: 6.75% vs. 5.35 %?
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CA Budget Crisis: Pattern Estimate of UCBudget UC Budget = UC Budget Share*Relative
Size of CA Government*CA Pers Inc Midpoint estimate: UC Budget = 0.0455*.0605*1176.4 $B =$
3.24 B estimate Governor’s proposal in January: $ 3.04 B So, $ 3.24 B is probably too optimistic
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Econometric Estimates
Linear Trend Estimate UCBUD(t) = a + b*t +e(t)
• about same as Governor’s January proposed $ 3.04 B
• Lucky?
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UC Budget
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Econometric Estimates
Logarithmic (exponential trend) lnUCBUD = a + b*t +e(t) simple exponential trend will over-estimate
UC Budget
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UC Budget
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Econometric Estimate
Dependence of UC Budget on CA Personal Income
UCBUD(t) = a + b*CAPY(t) + e(t) looks like a linear dependence on income
will overestimate the UC Budget for 2003-04
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UC Budget Vs. CA Personal Income, 1967-68 through 2003-04
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CA Personal Income, $B
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Econometric Estimates
How about a log-log relationship lnUCBUD(t) = a + b*lnCAPY(t) + e(t) autocorrelated residual fitted lnUCBUD(2003-04) = 1.18630
• $3.27 B
actual (Governor’s Proposal) = 1.11142• $3.04B
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Econometric Estimates
Try a distributed lag Model of lnUCBUD(t) on lnCAPY(t)• clearly lnUCBUD(t) is trended (evolutionary)
so difference to get fractional changes in UC Budget
• likewise, need to difference the log of personal income
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Estimate ARONE Model for dlncapy(t)
Orthogonalize dlncapy and save residual need to do transform dlnucbud dlnucbud(t) = h(Z)*dlncapy(y) + resid(t) dlncapy(t) = 0.732*dlncapy(t-1) + N(t) [1 - 0.732Z]*dlnucbud(t) = h(Z)* [1 -
0.732Z]*dlncapy(t) + [1 - 0.732Z]*resid(t) i.e. w(t) = h(Z)*N(t) + residw(t)
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43Orthogonal residuals from ARONE Model for dlncapy
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Distributed Lag Model
Having saved resid as res[N(t)] from ARONE model for dlncapy
and having correspondingly transformed dlnucbud to w
cross-correlate w and res
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Distributed lag model
There is contemporary correlation and maybe something at lag one
specify dlnucbud(t) = h0 *dlncapy(t) + h1
*dlncapy(t-1) + resid(t)
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48Dlnucbud c dlncapy dlncapy(-1)
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Try a dummy for 1992-93, the last recession, this is the once and for all decline in UCBudget mentioned by Granfield
There is too much autocorrelation in the residual from the regression of lnucbud(t) = a + b*lncapy(t) + e(t) to see the problem
Look at the same regression in differences
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Distributed lag Model
dlnucbud(t) = h0 *dlncapy(t) + h1
*dlncapy(t-1) + dummy (1992-93) + resid(t)
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55SER = 0.0459
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57Fitted fractional change in UC Budget is 0.0102 versusGovernor’s proposal of -0.0477
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58Correlogram of the residuals ducbud c dlncapy dlncapy(-1) dummy
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Distributed lag Model
Modify the specification; drop dlncapy(t) to get a forecasting model
dlnucbud(t) = h1 *dlncapy(t-1) + dummy (1992-93) + resid(t)
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60SER = 0.0567
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61Residuals from dlnucbud c dlncapy(-1) dummy
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Distributed Lag Model
Try modeling the residual with an ar(7) Try modeling the residual with an ma(7)
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63SER = 0.0537
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64SER = 0.0474
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65Correlogram of residuals from dlnucbud c dlncapy(-1) dummy ma(7)
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66Fitted fractional change in UC Budget is -0.0159 versusGovernor’s proposal of -0.0477
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Conclusions Governors proposed cut in UC Budget of
4.8% is greater than expected from various models
The UC Budget growth path ratcheted down in the recession beginning July 1990
The UC Budget growth path may be ratcheting down again in the recession beginning March 2001 • it may be too early to tell
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Logarithm of UC Budget, Changes in Growth Paths
-1.5
-1
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90-9
1
92-9
3
94-9
5
96-9
7
98-9
9
00-0
1
02-0
3
Fiscal Year
lnu
cbu
d
Fitted through 91-92
lnucbud
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69dlucbud c dlncapy(-1) dummy for 1992-93 dummy2for 2003-04 ma(7)
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70dlnucbud c dlncapy dummy for 1992-93 dummy2for 2003-04