"Rainy Day Funds and State Government Savings".

• Author: Knight, Brian
• Position: Brief Article

Knight, Brian and Levinson, Arik

National Tax Journal, September 1999, pp. 459-472.

This article examines the effect of budget stabilization funds, widely known as rainy day funds (RDFs), on state savings behavior. Specifically, it seeks to determine if RDFs represent an increase in total savings or if they are funds that otherwise would have been saved in a state's general fund and are simply transferred to an RDF account, producing no net increase in savings. The authors assessed the impact of RDFs using three criteria: 1) whether states had such funds; 2) what the size of the funds' balances were; and 3) the rules for contributions and withdrawals governing such funds. Differences across states were controlled for to minimize the possibility that states with RDFs may be systematically different from states without RDFs. The study finds that states with RDFs save more than states without...