Johnson, George E., and James D. Tomola. 1977. "The Fiscal Substitution Effect of Alternative Approaches to Public Service Employment Policy." Journal of Human Resources 12(1):3-26.

The size of the fiscal substitution effect is important in evaluating public service employment as either a counter-cyclical policy or as revenue-sharing. Empirically, the effect appears to be very small for one or two quarters, but rises to about 100 percent after five quarters. From an anti-poverty perspective, however, composition effects are most important. Although PSE program employees appear representative of the total labor force, the proportion of the disadvantaged among PSE participants is greater than the proportion of them in state and local government employment.

Johnson is Professor of Economics in the Department of Economics and Institute of Public Policy Studies, University of Michigan. Tomola is a graduate student in economics at Harvard University. This paper was written while both authors were with the Office of Evaluation, ASPER, U.S. Department of Labor, and the views expressed do not represent any sort of official position of that agency. It was prepared for ASPER-USDOL under Contract No. J-9-M-6-0009. We are particularly indebted to James L. Blum and Robert S. Smith for useful comments and suggestions.

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