Social Sector Expenditures and Rainy-Day Funds
18 Pages Posted: 20 Apr 2016
Date Written: September 2003
Gonzalez and Paqueo examine the effects of budget stabilization funds - often called rainy-day funds - on the volatility of social spending and, for contrast, on nonsocial sector spending. They analyze the rainy-day funds of U.S. states. The authors find that rainy-day funds are ineffective in reducing the volatility of nonsocial sector expenditures but are effective in reducing the volatility of social sector expenditures. The authors also find that states that have stringent deposit and withdrawal rules have higher rainy-day fund balances, and thus are more effective in reducing the volatility of social sector expenditures. Finally, for long-term effectiveness, stabilization funds depend obviously on sustained economic growth.
This paper - a joint product of the Economic Policy Sector Unit and the Social Protection Sector Unit, Latin America and the Caribbean Region - is part of a larger effort in the region to draw lessons from the U.S. states on the effects of budget stabilization funds on the volatility of expenditures.
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