The national economy has been increasingly subject to macroeconomic fluctuations in the 1970s. This paper demonstrates that these fluctuations have an important impact on state public finance. Tax revenues for these governments are directly related to the aggregate level of economic activity. However, the uncontrollabilit~ of such expenditure components as welfare, and the inflationary pressures in all program areas may increase expenditure levels in the face of declining revenue.
Since public institutions of higher education rely heavily on financial support from state governments, the cyclical budgetary conditions of these governments have important implications for higher education. Historically, a financial crunch in higher education has resulted in most program areas being restricted to a similar extent, which reflects the fact that administrators have not adjusted expenditure levels to effectively deal with cyclical financial problems. This paper documents the severity of cyclical fluctuations in higher education finance and suggests ways to cope with these problems.
The recent fiscal crisis in financing higher education has received much attention . In large part, this literature focuses on the impact of demand and supply factors associated with higher education expenditures. Secular changes in factors associated with the demand for higher education such as age composition of the population and the public image of institutions of higher learning are given considerable attention. The impact of inflation on supply costs is also emphasized; additional expenditures are needed with inflation to meet rising operating costs, to increase salaries, and to maintain present educational