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State government saving over the business cycle

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  • Wilson, Matthew

Abstract

State governments in the United States use savings funds to smooth public finances over the business cycle, and these funds respond to federal policy. State savings are positive and precautionary, insuring against adverse shocks. Federal transfers to states react to national business cycles, leaving states exposed to idiosyncratic risk. State governments faced with idiosyncratic and volatile business cycles save more than less risky states. Results suggest that federal fiscal policy is an influential determinant of state fiscal policy, but does not represent a fiscal union of perfect risk sharing.

Suggested Citation

  • Wilson, Matthew, 2023. "State government saving over the business cycle," Regional Science and Urban Economics, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:regeco:v:98:y:2023:i:c:s0166046222001004
    DOI: 10.1016/j.regsciurbeco.2022.103862
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    References listed on IDEAS

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    Cited by:

    1. Carmen Marín-González & Diego Martínez-López, 2024. "Fiscal stabilisation, debt sustainability and public spending in subnational governments. The case of the Spanish regions," Studies on the Spanish Economy eee2024-02, FEDEA.

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    More about this item

    Keywords

    Fiscal policy; Rainy day funds; Fiscal federalism; Fiscal union; Business cycles; Precautionary savings;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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