Countercyclical Fiscal Policy and Multiyear Perspective on Budgeting

Yilin Hou
Additional contact information
Yilin Hou: University of Georgia

Chapter Chapter 8 in State Government Budget Stabilization, 2013, pp 173-190 from Springer

Abstract: Abstract This chapter offers a theoretical exploration towards a new budgetary system to cope with uncertainty and instability. It begins by examining the practice of annual balance, core of the “modern” budgetary theory, and infers that annual budget creates a mismatch between the budget cycle and the continuity of public service provision. The chapter provides multi-year perspective on budgeting as a potential solution, with counter-cyclical fiscal reserves as the means to balance the budget through and across economic cycles. The chapter suggests that states have tried a multi-year perspective by adopting budget stabilization funds (BSF) and shifting annual surpluses from the general fund into BSF. By creating BSF legislation, states institutionalize the counter-cyclical fiscal policy. Then with sufficient fiscal reserves, states can better maintain trend-level public services during recessions. Through panel data (1979–1999) analysis, the chapter provides empirical evidence that BSF did help stabilize state general expenditure in downturns by releasing reserves to fill in spending gaps. Specifically, states that had established a BSF before the three sampled recessions fared better than those that did not; states that established a BSF earlier had better weathered the recessions than those that adopted the fund late. In other words, adopting the counter-cyclical fiscal policy and BSF is a step in moving public budgeting from the annual to a longer-term perspective, which indicates progress towards building a new budgetary system for fiscal stability over the economic cycle.

Keywords: Great Recession; Annual Budget; Financial Planning; Economic Cycle; Public Budget (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:spr:stpchp:978-1-4614-6061-9_8

Ordering information: This item can be ordered from
http://www.springer.com/9781461460619

DOI: 10.1007/978-1-4614-6061-9_8

Access Statistics for this chapter

More chapters in Studies in Public Choice from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().