Just like any other agent, when they spend more than their income they are adding that much to growth, and as their deficits fall the are net adding that much less.
By Mark Peters
January 26 (WSJ) — Governors across the U.S. are proposing tax cuts, increases in school spending and college-tuition freezes. The strengthening in tax revenue started in late 2012 as higher-income residents in many states took increased capital gains among other steps to avoid rising federal tax rates on certain income. Those tax payments spilled over into 2013, and further fuel for collections came from a record stock market and improving economy. State tax revenue nationally climbed 6.7% in the fiscal year ended June 30, 2013, Moody’s Analytics says. Still, state spending last year remained below peak levels in 2008 when adjusted for inflation, while state reserves hit their highest level since the recession, reaching a total of $67 billion nationally, or 9.6% of state spending, according to a report last month from the National Association of State Budget Officers.