Expenditure Smoothing under Balanced Budget Rules

Xavier Martin Bautista, Steven Craig, Annie Yuhsin Hsu, Sørensen, Bent E, Vasundhara Tanwar and Priyam Verma

No 21108, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: An increasing number of countries use balanced budget rules (BBRs) to control government debt, with the potential cost that BBRs constrain the governments' ability to smooth public expenditures. We find that U.S. state governments, despite having BBRs, smooth expenditures using savings. This is accomplished via substantial cash balances held by agencies outside of the General Fund with only a minor contribution from dedicated “rainy day†funds. We estimate a state government discount rate using a buffer stock model, fitted to fiscal data consolidated over all agencies, and find that expenditures are smoothed as if guided by a planner with a discount rate similar to that typically found for consumers.

JEL-codes: H72 H74 (search for similar items in EconPapers)
Date: 2026-01
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP21108 (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:cpr:ceprdp:21108

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP21108

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().