Do balanced budget practices of U.S. states make sense? Alternatives from the Eurozone

James W. Douglas and Ringa Raudla

Journal of Public Budgeting, Accounting & Financial Management, 2024, vol. 36, issue 2, 217-233

Abstract: Purpose - The purpose of this article is to challenge the balanced budget practices of U.S. state governments and offer alternatives that may lead to better fiscal, economic and policy outcomes. We contend that the norm of balance may be leading U.S. states to make fiscal decisions that result in less-than-ideal outcomes, especially during economic downturns. Design/methodology/approach - This is a normative article. We examine the scholarly evidence regarding balanced budget practices to assess the appropriateness of balanced budget norms. We also examine the fiscal rules followed by Eurozone countries to draw potential lessons for U.S. states. Findings - We conclude that state governments should move away from strict norms of budget balance and seek more flexible approaches. We suggest that instead of following strict rules and norms of balance, U.S. states should consider implementing escape clauses, debt and deficit ceilings, and fiscal councils. We also suggest that the Federal Reserve be open to lending directly to states during fiscal crises to ensure that states have access to affordable credit. Originality/value - The balanced budget norm has become ingrained in U.S. state budgeting practices, so much so that public officials and scholars alike rarely question it. The novel contribution of our article is to question this practice in a systematic way and propose alternative approaches.

Keywords: Debt; Fiscal rules; Deficits; Balanced budgets; Subnational deficits; U.S. state budgeting (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

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:eme:jpbafm:jpbafm-09-2023-0168

DOI: 10.1108/JPBAFM-09-2023-0168

Access Statistics for this article

Journal of Public Budgeting, Accounting & Financial Management is currently edited by Dr Giuseppe Grossi

More articles in Journal of Public Budgeting, Accounting & Financial Management from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().