State Saving Behavior: Effects of Two Fiscal and Budgetary Institutions
25 Pages Posted: 9 Nov 2007 Last revised: 6 May 2010
Date Written: October 1, 2006
This paper explores how the saving behavior of state governments is affected by adopting the budget stabilization fund (BSF) and by the state's balanced budget requirements (BBR). As a fiscal/budgetary institution, BSFs with unique design features and varying combinations of the BBR articles must have exerted impact or changed state savings one way or another. Building upon previous literature, we make further explorations. Specifically, we assembled a 25-year panel dataset that covers the last three business cycles (1979-2003), includes several budgetary institutions, and controls for state economy, social services, state politics, and business cycles. The paper finds that a state may increase its saving level by 2.5 percentage points via adopting BSF; the effect, however, is mainly from encoding medium- or high-range allowable balance caps and merging cash flow into the missions of the BSF, but not by requiring a certain balance level of the general fund as source of BSF. The paper also finds that requiring own-source revenue to match budgeted expenditures and requiring the legislature to pass a balanced budget may boost the saving level.
Keywords: states, saving, budget stabilization fund, balanced budget requirements, general fund balance
JEL Classification: E60, H30, H72
Suggested Citation: Suggested Citation