Some states are required to balance their budgets at all times. When a recession starts, is this requirement stabilizing or destabilizing? Explain.

A balanced budget requirement results in destabilization during recessions. During recessions, the amount of revenue that the government brings in declines because of less money being collected through income taxes. At the same time, government spending also increases in programs that are directly linked to poor economic conditions, such as unemployment benefits. Both of these effects cause budget deficits. If the government has a balanced budget requirement in place, they will need to cut back spending in other areas, which will cause further job losses and will further hurt the economy, which will also make it more difficult for the economy to recover from the recession.