Do Budget Stabilization Funds Invite Transparent Budget Reporting? Budget Stabilization Funds and Fiscal Behavior of States

This study explores how fiscal reserves, such as Budget Stabilization Funds (BSF) and General Fund Ending Balances (GFB), affect budget transparency and procyclical budget adjustments. To determine whether the effects of fiscal reserves depend on the types of budget actions, the study organizes budget actions according to 1) level, indicating the level at which budget actions take place, and 2) accessibility, denoting accessible budget-balancing strategies that face the least legal and political constraints. This classification of budget actions, which has not been attempted in prior research, enhances our understanding of government fiscal choices as it shows that the visibility and political costs of budget actions depend on available resources, levels, and accessibility. By using panel data from 45 US states from 2000 to 2019, the study finds that BSFs improve budget transparency, while decreasing budget cuts. The study also finds that BSF has a greater impact on budget transparency than revenue-raising actions. In contrast, an election year has a greater negative impact on budget cuts than budget transparency. These results support our classification of budget actions, predicting that budget cuts are used less in election years than in non-election years due to their visibility and political risk.