Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Chicago
Working Paper Series
Creating a national state rainy day fund: a modest proposal to improve future state fiscal performance
Richard H. Mattoon
Abstract

Throughout the 1990s states created budget stabilization (rainy day) funds to help provide counter-cyclical support in their budgeting process. Despite the sweeping popularity of such funds, many states have failed to adopt either contribution or expenditure rules that would create significant balances in their rainy day accounts.> This paper ask the question; what would happen if a national rainy day fund were established for the states with specific contribution and expenditure rules? The proposed fund would borrow from the unemployment compensation trust fund model by creating experience ratings for each state that would trigger differential fund contributions. Simulations on fund performance under differing rules are provided.> By constructing a national fund, local state pressure to spend reserve balances whenever they reach significant levels, could be avoided. In addition, a more tightly constructed fund might improve state credit ratings and reduce capital financing costs for states.


Download Full text
Cite this item
Richard H. Mattoon, Creating a national state rainy day fund: a modest proposal to improve future state fiscal performance, Federal Reserve Bank of Chicago, Working Paper Series WP-03-20, 2003.
More from this series
JEL Classification:
Subject headings:
Keywords: Funds availability ; Fiscal policy
For corrections, contact Bernie Flores ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal