State government saving over the business cycle

Matthew Wilson ()

Regional Science and Urban Economics, 2023, vol. 98, issue C

Abstract: State governments in the United States use savings funds to smooth public finances over the business cycle, and these funds respond to federal policy. State savings are positive and precautionary, insuring against adverse shocks. Federal transfers to states react to national business cycles, leaving states exposed to idiosyncratic risk. State governments faced with idiosyncratic and volatile business cycles save more than less risky states. Results suggest that federal fiscal policy is an influential determinant of state fiscal policy, but does not represent a fiscal union of perfect risk sharing.

Keywords: Fiscal policy; Rainy day funds; Fiscal federalism; Fiscal union; Business cycles; Precautionary savings (search for similar items in EconPapers)
JEL-codes: E21 E32 E62 F45 H3 H7 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:98:y:2023:i:c:s0166046222001004

DOI: 10.1016/j.regsciurbeco.2022.103862

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