Evaluating the Effect of Rainy Day Funds on Alleviating Fiscal Stress in the Great Recession
*Names in bold indicate Presenter
Previous studies on RDFs focus on three fiscal crisis periods after the sharp emergence of RDFs in the early 1980s, that are, 1980 to 1982, 1990 to1991, and 2002 to 2003, and results and conclusions from these studies are various, or even contradictory. However, few studies have paid attention to the effect of RDFs in the most recent economic crisis that began in 2008, which is named the Great Recession, the most serious economic recession since the Great Depression.
The question that will be explored in this research is whether the RDFs exerted a significant constructive effect on alleviating the fiscal stress in American states during the Great Recession. In the case of great seriousness of the economic recession, the existence of RDFs in the vast majority of states, the accumulated experience of state policymakers in using RDFs in economic downturns, in addition to the “stimulus package” from the federal government, the effect of RDFs on alleviating fiscal stress in the recession should be newly evaluated.
The contributions of this research to literature come in at least three ways. First, it employs a new approach to estimate fiscal stress. Second, it evaluates the effect of RDFs, incorporating the unprecedented “stimulus package” to states from the federal government. At last, it analyzes the effect of RDFs in the most recent economic recession that began in 2008, which is rarely seen in the published research.