State Fiscal Management: What Practitioners Can Learn from Risk Management Theory
17 Pages Posted: 1 May 2006
Date Written: July 20, 2006
In recent years, scholars have developed new analytical tools and financial instruments that could help governments cope more effectively with financial volatility. In this essay we show how states can achieve fiscal sustainability using financial instruments based upon mean-variance analysis: present-value balance, revenue diversification, macroeconomic hedging, self-insurance, etc. In this essay, we explain these tools and show how they fit together.
Keywords: state spending, state taxes, macroeconomic hedging, target budgeting, structural and cyclical deficits, rainy day funds, Oregon
JEL Classification: H71, H72, H74, F34
Suggested Citation: Suggested Citation