Spending Stabilization Rules: A Solution to Recurring State Budget Crises?

20 Pages Posted: 29 Dec 2005

See all articles by Donald Schunk

Donald Schunk

University of South Carolina

Douglas P. Woodward

University of South Carolina

Abstract

Recurring state fiscal crises raise a fundamental question: Is it possible to stabilize budgets over the business cycle? This paper examines spending stabilization rules, an alternative to the inaccurate process of budget forecasting. Under two spending rules, we assess how state budget situations would compare with actual experience. Our analysis reconstructs recent aggregate state budget patterns assuming states had adopted a rule and then takes a closer look at California and South Carolina. With surpluses partially invested in a rainy-day fund, a spending rule resulted in stable growth of state budgets throughout the recession and sluggish recovery of the early 2000s.

Suggested Citation

Schunk, Donald and Woodward, Douglas P., Spending Stabilization Rules: A Solution to Recurring State Budget Crises?. Public Budgeting & Finance, Vol. 25, No. 4, pp. 105-124, December 2005, Available at SSRN: https://ssrn.com/abstract=857746 or http://dx.doi.org/10.1111/j.1540-5850.2005.00376.x

Donald Schunk (Contact Author)

University of South Carolina ( email )

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Douglas P. Woodward

University of South Carolina ( email )

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Columbia, SC 29208
United States
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