Panel Paper:
A Study on the Persistence of Fiscal Shocks: How Balanced Budget Requirements, Rainy Day Funds, and Withdrawal Requirements Influence the Continuation of Shocks
Friday, November 13, 2015
:
10:55 AM
Johnson II (Hyatt Regency Miami)
*Names in bold indicate Presenter
| The purpose of this paper and its model is to examine the persistence fiscal shocks may have on state budgets. Do deficit or surplus shocks influence proposed budget expenditures and revenues, and what, if any, effect do these shocks have on actual spending and revenues in the year following the shock? To understand this effect the model explores the state’s shock interacted with its balanced budget requirements and controls for its budget stabilization funds, also known as rainy day fund, and their withdrawal/deposit requirements. Although states may be hesitant to use their rainy day funds, these funds measure a state’s propensity to save and can therefore help us understand how states will address potential shortfalls. Further, expectations are that states with strict balanced budget rules will reconcile fiscal shocks in the period they occur, preventing fiscal shocks from having lingering effects. The model will provide for a better understanding of potential persistence by exploiting the difference between each state’s institutionary rules, savings, and its fiscal shocks. Understanding how states respond while constrained to their fiscal policies is a growing area of interest that this paper explores. In addition to building upon work done by previous literature, this paper also infers that state experiences may be applicable in a comparison at the federal level. |
