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Budgeting for Fiscal Stability over the Business Cycle: A Countercyclical Fiscal Policy and the Multiyear Perspective on Budgeting
Author(s) -
Hou Yilin
Publication year - 2006
Publication title -
public administration review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.721
H-Index - 139
eISSN - 1540-6210
pISSN - 0033-3352
DOI - 10.1111/j.1540-6210.2006.00638.x
Subject(s) - business cycle , recession , fiscal policy , economics , perspective (graphical) , fiscal year , macroeconomics , monetary economics , economic policy , finance , artificial intelligence , computer science
This essay is a theoretical exploration of a new budgetary system to cope with fiscal uncertainty and instability.1It examines policies requiring positive year‐end balances and infers that annual budget cycles lead to a mismatch between the budget cycle and the continuity of public service provision. The author considers a multiyear perspective on budgeting as a potential solution, with countercyclical fiscal reserves to help ensure stability during fluctuating economic conditions. By adopting budget stabilization funds and keeping sufficient reserves, states can better maintain trend‐level public services during recessions. Panel data analysis provides empirical evidence that such funds helped stabilize state general expenditures during downturns. The adoption of countercyclical fiscal policy and budget stabilization funds is a step toward a longer‐term perspective on budgeting, thus promoting fiscal stability over the economic cycle.