Rainy day funds and state government savings

This paper examines the effect of rainy day funds (RDFs) on state savings b ehavior We find that states with RDFs have higher total balances than state s without such funds and also have higher balances after adoption than befo re adoption. Furthermore, RDF deposits increase total balances dollar-for-d ollar While we cannot rule out that states planning future savings may adop t RDFs, our findings are robust to the inclusion of measures of savings pre ferences. In sum, these funds appear to belong to the growing set of fiscal institutions with real fiscal and economic consequences.