Effects of Boom-Year Savings Across Three Types of State Expenditures

Abstract

AbstractThis chapter examines the distribution of the effects of countercyclical savings across three types of state expenditure over the economic cycle. As I have discussed in Chapter 3, boom-year savings refer to budget stabilization funds (BSF) and general fund surpluses (GFS). I use panel data of 49 states from 1979 to 1999 to test the effects of BSF and GFS on general, own-source, and general fund expenditures of the states during downturns and upturns. I find a “division of work” between the two saving devices: Though the use of BSF concentrates on own-source spending, BSF are used to boost general expenditure more than general fund expenditure in downturns but to increase general fund expenditure more than general expenditure in upturns. The effects of GFS are significant only on general fund expenditure in upturns. This finding suggests that states may have some unstated or implicit “strategy” on when (downturn or upturn) and where (which the three types of expenditures) to use the two kinds of savings.KeywordsBalance BudgetOrdinary Little Square ModelPercentage Point IncreaseEconomic CycleState ExpenditureThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.