State Rainy Day Funds and Fiscal Crises: Rainy Day Funds and the 1990-1991 Recession Revisited

The recession of the early 1980s prompted many states to establish budget stabilization (rainy day) funds. Initial examinations of rainy day funds find a limited impact by the funds in alleviating fiscal stress. In this article, we propose an enhanced model of rainy day fund impact. Using data from...

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Bibliographic Details
Published in:Public budgeting & finance 2002, Vol.22 (1), p.19-30
Main Authors: Douglas, James W., Gaddie, Ronald Keith
Format: Article
Language:English
Subjects:
Budgeting
Budgets
Business cycles
Dependent variables
Economic models
Expenditures
Fiscal years
Municipal finance
Recessions
Studies
Tax increases
Taxes
Variables
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Summary:The recession of the early 1980s prompted many states to establish budget stabilization (rainy day) funds. Initial examinations of rainy day funds find a limited impact by the funds in alleviating fiscal stress. In this article, we propose an enhanced model of rainy day fund impact. Using data from 48 states for the 1990–1991 recession, our analysis indicates that the presence of a number of structural factors and the maintenance of generally large balances in other funds entering recession helps to alleviate fiscal stress when a state’s economy is in recession.
ISSN:0275-1100
1540-5850
DOI:10.1111/1540-5850.00063