The Case for Countercyclical Fiscal Capacity

Posted: 9 Jul 2008

See all articles by Yilin Hou

Yilin Hou

Maxwell School, Syracuse University

Donald P. Moynihan

Georgetown University - McCourt School of Public Policy

Date Written: January 2008

Abstract

A growing literature has sought to demonstrate when and how government capacity links to performance. This article examines those questions in the area of financial management. A basic challenge for state governments is to maintain budgetary stability and program predictability in face of economic downturns. State governments can best meet this challenge by developing what we call countercyclical fiscal capacity (CCFC). We present the concept of CCFC as the creation and use of financial tools that help state governments maintain countercyclical spending and program stability during revenue shocks. We operationalize the concept in terms of fiscal reserves that are used to mitigate emergency-spending cuts and tax increases and analyze the operation of such reserves over a period that includes recessions in 1991 and 2001. We find evidence of the efficacy of CCFC and argue for greater investments in this aspect of government capacity.

Suggested Citation

Hou, Yilin and Moynihan, Donald P., The Case for Countercyclical Fiscal Capacity (January 2008). Journal of Public Administration Research and Theory, Vol. 18, Issue 1, pp. 139-159, 2008, Available at SSRN: https://ssrn.com/abstract=1157247 or http://dx.doi.org/10.1093/jopart/mum006

Yilin Hou (Contact Author)

Maxwell School, Syracuse University ( email )

426 Eggers Hall
Syracuse, NY 13244-1020
United States
315-443-3114 (Phone)

HOME PAGE: http://www.maxwell.syr.edu/pa/cpr/Hou,_Yilin/

Donald P. Moynihan

Georgetown University - McCourt School of Public Policy ( email )

Old North, Suite 100
37th & O Streets NW
Washington, DC 20057
United States

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