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Hou paper on effects of fiscal and budgetary institutions published in Public Budgeting & Finance

Aug 7, 2008

State saving behavior: Effects of Two Fiscal and Budgetary Institutions

Yilin Hou & William Duncombe

Public Budgeting & Finance, August 2008

Yilin Hou headshot

Yilin Hou


This paper explores how state saving behavior is affected by two fiscal/budgetary institutions—budget stabilization funds (BSF) and balanced budget requirements (BBR). While adopted for different reasons, BSF and BBR could have significant effects on state savings behavior depending on their design features.

The authors empirically examine the effects of BSF and BBR using a panel data set that covers three business cycles, controlling for budgetary institutions, state economy, social services, politics, and business cycles. The paper finds that adopting BSF and BBR can raise savings by 2 and 3 percentage points, respectively; however, the effects depend crucially on the devices' design.