An empirical analysis of budget stabilisation funds and cutback management: which strategy is more effective for US state governments? Online publication date: Wed, 03-Nov-2021
by Sungchan Kim; Soyoung Park
International Journal of Public Sector Performance Management (IJPSPM), Vol. 8, No. 4, 2021
Abstract: Until recently, decision-makers in subnational governments have had to adopt some budgetary strategies in order to stabilise budgets during economic changes. Both budget stabilisation funds (BSFs) and cutback management are major strategies to cope with budgetary difficulties. However, there is little research on which budgetary strategy subnational governments should use in a certain context. This study attempts to examine the impact of both BSFs and cutback management and compare their effectiveness by using the dataset of US state governments from 2001 to 2013. We find that BSFs increase the volatility of total expenditures, while cutback management is effective in reducing volatility. However, if state governments implement cutback management, they may not attain fiscal stability despite spending more money. On the other hand, boosting the economy by increasing expenditure is effective in reducing volatility of total expenditures in the context that they spend BSF.
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