Effects of Boom-Year Savings on Bust-Year Budgetary Actions

Yilin Hou
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Yilin Hou: University of Georgia

Chapter Chapter 7 in State Government Budget Stabilization, 2013, pp 151-169 from Springer

Abstract: Abstract This chapter examines the effects of boom-year savings on budgetary actions that states often take during a recession. Here I draw the link between countercyclical fiscal policy and the concept of countercyclical fiscal capacity (CCFC). I define CCFC as the accumulation of savings in boom years and the use of them during revenue shortfalls to maintain countercyclical spending and program stability. Because a basic challenge for state governments is to maintain budgetary stability and program predictability in face of economic downturns, states can best meet this challenge by developing the “countercyclical fiscal capacity.” In this chapter, I operationalize CCFC in terms of fiscal reserves (BSF and GFS) and analyze the operation of such reserves over a period that includes recessions in 1991 and 2001. I find evidence of the efficacy of countercyclical fiscal capacity and argue for states to make greater investments in this aspect of governance capacity.

Keywords: State Government; Reserve Fund; Government Ideology; Budgetary Institution; Capita Personal Income (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:spr:stpchp:978-1-4614-6061-9_7

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DOI: 10.1007/978-1-4614-6061-9_7

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