A report analyzing the potential short-run economic effects of eleven options for reducing Alaska’s huge budget deficit is now complete. The authors are ISER economists Gunnar Knapp, Matthew Berman and Mouhcine Guettabi. They looked at potential effects of several kinds of state spending cuts, new taxes, saving less of Permanent Fund earnings and reducing the Permanent Fund dividend. They emphasize that they don’t advocate or oppose any option, but rather intend to help Alaskans understand and compare the potential short-run effects on income and jobs of different ways of reducing the deficit. In the big picture, they found:
- Different ways of collecting money from Alaskans affect those with higher and lower incomes in significantly different ways.
- Anything the state does to reduce the deficit will cost the economy money and jobs. But spending some of the Permanent Fund earnings the state currently saves would not have any short-run economic effects. In the longer run, saving less would slow growth of the Permanent Fund and reduce earnings.
- Because the deficit is so big, the overall economic effects of closing the deficit will also be big.
The final report is available as a PDF and presentation at the Institute of Social and Economic Research website.