State saving behavior: Effects of two fiscal and budgetary institutions

Public Budgeting and Finance

Volumn 28, Issue 3, 2008, Pages 48-67

  Hou, Yilin ^a   Duncombe, William ^b  

^a UNIVERSITY OF GEORGIA   (United States)

^b SYRACUSE UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 65249130572     PISSN: 02751100     EISSN: 15405850     Source Type: Journal    
DOI: 10.1111/j.1540-5850.2008.00910.x     Document Type: Article

References (60)

1. R.W. Rafuse, "Cyclical behavior of state-local finances," in Essays in Fiscal Federalism, ed. Richard A. Musgrave (Washington, DC: The Brookings Institution, 1965), 63-121.
2. The National Association of State Budget Officers (NASBO), State Budget Processes (Washington, DC, 1985, 1988, 1992, 1995, 1998, and 2002 editions). For the purposes of this paper, a GFB is defined as the difference between current assets and current liabilities on the general fund statement of net assets. We are using pre-GASB 34 accounting standards and financial information.
3. John M. Firestone, Federal Receipts and Expenditures during Business Cycles, 1879-1958 (Princeton, NJ: Princeton University Press, 1960).
4. Rafuse, 1965
5. and Ronald C. Fisher, "Statement before the Intergovernmental Relations and Human Resources Subcommittee of the Committee on Government Operations," in U.S. Congress, Federal and State Roles in Economic Stabilization - Hearings before a Subcommittee of the Committee on Government Operations House of Representatives, ed. Richard A. Musgrave (November and December 1984. U.S. Government Printing Office, 1985), 101-107.
6. Refuse 1965
7. and Fisher 1984.
8. Steven D. Gold, "Contingency Measures and Fiscal Limitations: The Real World Significance of Some Recent State Budget Renovations," National Tax Journal 37, no. 3 (1984): 421-432.
9. A widely held or common standard of adequate savings is a GFB that is 5 percent or more of the total general fund expenditures, see Philip Joyce, "What's So Magical about Five Percent?," Public Budgeting and Finance 21, no. 21 (2001): 62-87.
10. For anecdotal origin of this 5-percent rule, see Yilin Hou, "Budget Stabilization Fund: Structural Features of the Enabling Legislation and Balance Level," Public Budgeting and Finance 24, no. 3 (2004): 45, note 31.
11. Yilin Hou, "Budgeting for Fiscal Stability over the Business Cycle," Public Administration Review 66, no. 5 (2006): 731.
12. Yilin Hou, "What Stabilizes State General Fund Spending during Downturns: Budget Stabilization Fund, General Fund Unreserved Undesignated Balance, or Both?," Public Budgeting and Finance 23, no. 3 (2003): 66.
13. Yilin Hou, 2004.
14. Studies of individual retirement saving have examined the issue of substitution between alternative saving devices. For example, James M. Poterba, Steven F. Venti, and David A. Wise ("Do 401(k) Contributions Crowd Out Other Personal Saving?," Journal of Public Economics 58, no. 1 (1995): 1-32) examine the interaction between 401(k) and other personal saving devices
15. Gary V. Englehardt ("Pre-Retirement Lump-Sum Pension Distributions and Retirement Income Security: Evidence from the Health and Retirement Study," National Tax Journal LV, no. 4 (2002): 665-685) looks into the relation between spent distributions and pension accumulation.
16. Brian Knight and Arik Levinson, "Rainy Day Funds and State Government Savings," National Tax Journal LII, no. 3 (1999): 459-472. They also estimate their models with a shorter panel from 1987 to 1997.
17. Gary A. Wagner, "Are State Budget Stabilization Funds Only the Illusion of Savings? Evidence from Stationary Panel Data," Quarterly Review of Economics and Finance 43, no. 2 (2003): 213-238.
18. He carries out separate tests on two subsets of these states that have stationary (18 states) and non-stationary (10 states) total savings and BSF balances. The BSF coefficient in the regression was 0.44 for stationary states and 0.49 for non-stationary states.
19. James M. Poterba, "State Responses to Fiscal Crises: The Effects of Budgetary. Institutions and Politics," Journal of Political Economy 102, no. 4 (1994): 799-821
20. Henning Bohn and Robert P. Inman, "Balanced Budget Rules and Public Deficits: Evidence from the U.S. States," NBER Working Paper No. 5533, 1996.
21. Joyce, 2001.
22. William F. Fox and Charles Campbell, "Stability of the State Sales Tax Income Elasticity," National Tax Journal 37, no. 2 (1984): 201-212
23. Fred C. White, "Trade-Off in Growth and Stability in State Taxes," National Tax Journal 36, no. 1 (1983): 103-114.
24. James E. Alt and Robert C. Lowry, "Divided Government and Budget Deficits: Evidence from the States," American Political Science Review 88 (1994): 811-828
25. "A Dynamic Model of State Budget Outcomes under Divided Partisan Government," Journal of Politics 62, no. 4 (2000): 1035-1069.
26. Poterba, 1994.
27. Steven G. Gold, ed., The Fiscal Crisis of the States - Lessons for the Future (Washington, DC: Georgetown University Press, 1995)
28. H. W. Elder, "Exploring the Tax Revolt: An Analysis of the Effects of Tax and Expenditure Limitations," Public Finance Quarterly 20 (1992): 47-63.
29. Bohn and Inman, 1996
30. James M. Poterba, "Balanced Budget Rules and Fiscal Policy: Evidence from the States," National Tax Journal 48, no. 3 (1995): 329-336.
31. Bohn and Inman, 1996.
32. Hou, 2004.
33. Alt and Lowery, 2000.
34. Knight and Levinson, 1999
35. Wagner, 2003.
36. Warren Ruppel, GAAP for Governments (New York: Wiley, 2005).
37. This is because some states maintain their BSF under, and report it as part of, their general fund balance, which leads to a double counting problem. A cursory examination of the CAFR can reveal this problem. The Fiscal Survey of the States by NASBO also indicates this in the notes.
38. Bohn and Inman, 1996.
39. National Association of State Budget Officers (NASBO), State Balanced Budget Requirements: Provisions and Practice (Washington, DC, 1992).
40. Yilin Hou and Daniel Smith, "Do State Balanced Budget Requirements Matter - Testing Two Explanatory Frameworks" paper presented at the annual conference of theWestern Social Sciences Association (WSSA), April 20-22, 2006, Phoenix, Arizona; available from SSRN: http://ssrn.com/abstract=913842. Accessed December 13, 2007.
41. National Association of State Budget Officers (NASBO), Fiscal Survey of the States, Series (Washington, DC, 1977-2004)
42. Government Finance Officers Association (GFOA), "Develop Policy on Stabilization Funds," in Recommended Budget Practices (Chicago, IL: GFOA, 1999), 17, 26.
43. Hou (2003).
44. James W. Douglas and Ronald Keith Gaddie, "State Rainy Day Funds and Fiscal Crises: Rainy Day Funds and the 1990-1990 Recession Revisited," Public Budgeting and Finance 22, no. 1 (2002): 19-30; Wagner 2003.
45. An alternative is to develop an index from these features. Although an ordinal index has the advantage of being "simple" and "straightforward," the index may hide the direct effects of some significant features. Thus, we chose to use the features themselves.
46. Yilin Hou and Daniel Smith, "A Framework for Understanding State Balanced Budget Requirement Systems: Re-Examining Distinctive Features and an Operational Definition," Public Budgeting and Finance 26, no. 3 (2006): 22-45.
47. Twenty-eight states now have some type of tax and Expenditure Limitation either in their statute or constitution; three-quarters of these were adopted in the late-1970s and early-1980s in the wake of the taxrevolt movements initiated by Proposition 13 in California.
48. For details, see Daniel R. Mullins and Bruce A. Wallin, "Tax and Expenditure Limitations: Introduction and Overview," Public Budgeting and Finance 24, no. 4 (2004): 2-15.
49. Knight and Levinson mention this, by citing Gold (1984), as a potential cause for the spread of BSF (1999, 469).
50. See National Association of State Budget Officers (NASBO), State Budget Processes, 1985, 1988, 1992, 1995, 1998, and 2002 editions.
51. John P. Forrester, "Multi-Year Forecasting and Municipal Budgeting," Public Budgeting and Finance 11, no. 2 (1991): 47-61.
52. National Governors' Association, The Book of the States, series, various years. Another budgetary institution we would like to control for is gubernatorial veto power as proxy for governor's authority in the budgetary process. Unfortunately data are not readily available for all of our sample years
53. NASBO has reported this variable for only a few years.
54. Alt and Lowery, 1994 and 2000; John Matsusaka, "Fiscal Effects of Direct Legislation: Evidence from the Last 30 Years," Journal of Political Economy 103, no. 3 (1995): 587-623
55. Eric M. Patashnik, "Ideas, Inheritance and the Dynamics of Budgetary Change," Governance: An International Journal of Policy and Administration 12, no. 2 (1999): 47-174
56. Poterba, 1994
57. and Bohn and Inman, 1996.
58. The role of fixed-effects is discussed in James J. Heckman, Robert J. LaLonde, and Jeffrey A. Smith, The "Economics and Econometrics of Active Labor Market Programs," in O. C. Ashenfelter and D. Card, eds., Handbook of Labor Economics Amsterdam: Elsevier, 1999), Vol. 3A, 1865-2097
59. Howard S. Bloom ("Estimating the Effects of Job Training Programs Using Longitudinal Data: Ashenfelter's Findings Reconsidered," Journal of Human Resources 1, no. 4 (1984): 544-556) provides an example involving both fixed effects and time trends.
60. S. J. Prais and C. B. Winsten, "Trend Estimators and Serial Correlation," Cowles Commission Discussion Paper No. 383, Chicago, 1954.