In New York City, there is growing debate on how to pay for the expanded social services promised by Mayor Zohran Mamdani, given the profound absence of federal support under President Trump. This debate resonates far outside New York as other U.S. cities face similar challenges.
Given the tension between federal and local governments, this paper makes the case for New York City enacting countercyclical fiscal policy to strengthen its economy and navigate downturns.
Countercyclical fiscal policy generally means a government uses its own spending and taxation power to smooth out business cycle fluctuations. During a recession, for example, a government would increase or maintain its spending while reducing taxes – actions that help stabilize demand, employment, and income, while reducing “economic scarring.”
Countercyclical fiscal policy is not widely promoted at the local level, given that New York has had significant borrowing and spending constraints since the 1970s fiscal crisis. This report by Amanda Page-Hoongrajok lays out how it is in fact a powerful tool in a downturn.
The report breaks down types of spending with the most countercyclical power, the challenges of using taxation as a countercyclical tool, and how countercyclical fiscal policy power could come from adjustments in asset positions. It argues why New York City should reconsider the use of deficit financing to shift toward countercyclical fiscal policy. It concludes with 10 explicit recommendations to make this fiscal policy shift.
Shifting political tides, and growing pressure for socialized government services, offers New York City policymakers a distinct opportunity to think differently and bring a countercyclical perspective into their debates, projects, and overall work.