Contingency public funds for emergencies: the lessons from the international experience

Júlia Brunet (), Lucía Cuadro-Sáez () and Javier Pérez
Additional contact information
Júlia Brunet: Banco de España
Lucía Cuadro-Sáez: Banco de España
Authors registered in the RePEc Author Service: Lucía Cuadro Sáez

No 2032, Occasional Papers from Banco de España

Abstract: Should societies (governments) save during economic expansions in order to cover the costs of extraordinary situations, such as natural or biological catastrophes or, more generally, economic crises? This question has been raised once again by the economic and social crisis linked to the confinement measures implemented to control the spread of the COVID-19 pandemic and the enormous public spending required to mitigate its impact. There are two general approaches in the economic literature to this debate, which are not mutually exclusive. First, the more standard approach indicates that governments, in these situations, should resort to borrowing. This allows the impact of shocks to be smoothed over time, as long as governments are sufficiently disciplined to rebuild the necessary room for manoeuvre during upswings. However, the evidence available shows that debt tends to decline only very gradually in post-crisis periods. Under the second approach, governments build up contingency funds or rainy-day funds during economic booms. International experience has numerous examples of national and regional funds of this type. This paper reviews the experience of such funds, with a view to drawing lessons as to their potential usefulness as an instrument of support in crisis situations and fiscal emergencies. Although the international evidence on their use is highly heterogeneous, it shows that when these funds are appropriately structured and sufficiently large they contribute to mitigating the impact of shocks and improving fiscal discipline.

Keywords: rainy-day funds; economic crises; natural catastrophes; biological catastrophes; government debt (search for similar items in EconPapers)
JEL-codes: E63 H12 H63 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2020-12
New Economics Papers: this item is included in nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.bde.es/f/webbde/SES/Secciones/Publicac ... 20/Files/do2032e.pdf First version, January 2021 (application/pdf)
https://www.bde.es/f/webbde/SES/Secciones/Publicac ... s/20/Fich/do2032.pdf Spanish version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bde:opaper:2032e

Access Statistics for this paper

More papers in Occasional Papers from Banco de España Contact information at EDIRC.
Bibliographic data for series maintained by Ángel Rodríguez. Electronic Dissemination of Information Unit. Research Department. Banco de España ().