Advertisement

Budget Stabilization Fund in Interaction with Balanced Budget Requirements

  • Yilin Hou
Chapter
Part of the Studies in Public Choice book series (SIPC, volume 8)

Abstract

In this chapter, I examine how the budget stabilization fund (BSF) interacts with balanced budget requirements (BBR); that is, in what way and to what extent the saving behavior of state governments is affected by the adoption of the stabilization fund in a BBR environment. While BBR are a long-standing institution, BSF is new. Though these two budgetary institutions were adopted for different reasons, both could have exerted substantive influences on state saving behavior, depending on the unique design features of the two in each state. This chapter empirically tests the effects of BSF and BBR on state savings covering three economic cycles. The 25-year (1979–2003) panel data also include information on state economy, social services, politics, and economic cycles. The results show that the adoption of a BSF can raise state savings level by 2.5% points; however, the effects depend crucially on the design of BSF, and that BBR rules requiring state own-source revenue to match budgeted expenditures and requiring the legislature to pass a balanced budget may also boost the savings level.

Keywords

Saving Rate State Saving Economic Cycle Generally Accept Accounting Principle General Fund 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

References

  1. Alt JE, Lowry RC (1994) Divided government and budget deficits: evidence from the states. Am Polit Sci Rev 88:811–828CrossRefGoogle Scholar
  2. Alt JE, Lowry RC (2000) A dynamic model of state budget outcomes under divided partisan government. J Polit 62(4):1035–1069CrossRefGoogle Scholar
  3. Bohn H, Inman RP (1996) Balanced-budget rules and public deficits: evidence from the U.S. states. Paper read at Carnegie-Rochester conference series on public policy. NBER Working Paper No. 5533, Rochester, NYGoogle Scholar
  4. Douglas JW, Gaddie RK (2002) State rainy day funds and fiscal crises: rainy day funds and the 1990–1990 recession revisited. Public Budg Finance 22(1):19–30CrossRefGoogle Scholar
  5. Dye RF, McGuire TJ (1992) Sorting out state expenditure pressures. Natl Tax J 45(3):315–329Google Scholar
  6. Elder HW (1992) Exploring the tax revolt: an analysis of the effects of tax and expenditure limitations. Public Finance Q 20:47–63CrossRefGoogle Scholar
  7. Firestone JM (1960) Federal receipts and expenditures during business cycles 1879–1958, NBER studies in business cycles series. Princeton University Press, PrincetonGoogle Scholar
  8. Fisher RC (1984) Statement before the intergovernmental relations and human resources subcommittee of the committee on government operations. In: U.S. Congress (1985), Federal and state roles in economic stabilization. United States House of Representatives, 99th Congress, 1st Session, report 99–460, Washington, D.C, pp 101–107Google Scholar
  9. Forrester JP (1991) Multi-year forecasting and municipal budgeting. Public Budg Finance 11(2):47–61CrossRefGoogle Scholar
  10. Fox WF, Campbell C (1984) Stability of the state sales tax income elasticity. Natl Tax J 37(2):201–212Google Scholar
  11. Gold SD (1984) Contingency measures and fiscal limitations: the real world significance of some recent state budget renovations. Natl Tax J 37(3):421–432Google Scholar
  12. Gold SG (ed) (1995) The fiscal crisis of the states – lessons for the future. Georgetown University Press, Washington, DCGoogle Scholar
  13. Government Finance Officers Association (1999). Develop policy on stabilization funds17, 26. In: Recommended budget practices. GFOA, ChicagoGoogle Scholar
  14. Hou Y (2003) What stabilizes state general fund spending during downturns: budget stabilization fund, general fund unreserved undesignated balance, or both? Public Budg Finance 23(3):64–91CrossRefGoogle Scholar
  15. Hou Y (2004) Budget stabilization fund: structural features of the enabling legislation and balance level. Public Budg Finance 24(3):38–64CrossRefGoogle Scholar
  16. Hou Y (2006) Budgeting for fiscal stability over the business cycle. Public Adm Rev 66(5):730–742CrossRefGoogle Scholar
  17. Hou Y, Smith DL (2006) A framework for understanding state balanced budget requirement systems: re-examining distinctive features and an operational definition. Public Budg Finance 26(3):22–45CrossRefGoogle Scholar
  18. Hou Y, Smith DL (2010) Do state balanced budget requirements matter? – testing two explanatory frameworks. Public Choice 145(1):57–79CrossRefGoogle Scholar
  19. Joyce P (2001) What’s so magical about five percent? Public Budg Finance 21(2):62–87CrossRefGoogle Scholar
  20. Knight B, Levinson A (1999) Rainy day funds and state government savings. Natl Tax J 52(3):459–472Google Scholar
  21. Matsusaka J (1995) Fiscal effects of direct legislation: evidence from the last 30 years. J Polit Econ 103(3):587–623CrossRefGoogle Scholar
  22. Mullins DR, Wallin BA (2004) Tax and expenditure limitations: introduction and overview. Public Budg Finance 24(4):2–15CrossRefGoogle Scholar
  23. National Association of State Budget Officers (NASBO 1977–2004) Fiscal survey of states series. NASBO, Washington, DCGoogle Scholar
  24. National Association of State Budget Officers (NASBO) State budget processes. 1985, 1988, 1992, 1995, 1998 and 2002 editions. Washington, DCGoogle Scholar
  25. National Association of State Budget Officers (NASBO) (1992) State balanced budget requirements: provisions and practice. NASBO, Washington, DCGoogle Scholar
  26. Poterba JM (1994) State responses to fiscal crises: the effects of budgetary institutions and politics. J Polit Econ 102(4):799–821CrossRefGoogle Scholar
  27. Poterba JM (1995) Balanced budget rules and fiscal policy: evidence from the states. Natl Tax J 48(3):329–336Google Scholar
  28. Prais SJ, Winsten CB (1954) Trend estimators and serial correlation. Cowles Commission discussion paper no. 383, ChicagoGoogle Scholar
  29. Rafuse RW (1965) Cyclical behavior of state-local finances. In: Musgrave RA (ed) Essays in fiscal federalism. The Brookings Institution, Washington, DC, pp 63–121Google Scholar
  30. Ruppel W (2005) GAAP for governments. Wiley, New YorkGoogle Scholar
  31. Schick A (1998) A contemporary approach to public expenditure management. The World Bank Institute, Washington, DCGoogle Scholar
  32. Wagner GA (2003) Are state budget stabilization funds only the illusion of savings? Evidence from stationary panel data. Q Rev Econ Finance 43(2):213–238CrossRefGoogle Scholar
  33. White FC (1983) Trade-off in growth and stability in state taxes. Natl Tax J 36(1):103–114Google Scholar

Copyright information

© Springer Science+Business Media, LLC 2013

Authors and Affiliations

  • Yilin Hou
    • 1
  1. 1.University of GeorgiaAthensUSA

Personalised recommendations