Hou article on general fund expenditures in downturn years published in Public Budgeting & Finance
Aug 18, 2003
What Stabilizes State General Fund Spending during Downturns: Budget Stabilization Fund, General Fund Unreserved Undesignated Balance, or Both?
Yilin Hou
Public Budgeting & Finance, August 2003
This article strictly defines the budget stabilization fund (BSF) as a counter-cyclical reserve, and with a panel data set examines the effects of BSF and general fund unreserved undesignated balances (UUB) on stabilizing state general fund expenditure during downturns. The article finds that BSFs bolster spending in lean years: each percentage point increase of BSF balance as a percent of general fund expenditure can minimize negative expenditure gap by a quarter percentage point. But the article does not find evidence that UUB is a counter-cyclical fiscal tool, indicating that wide adoption of BSF may have changed the nature and use of UUB.