CONTINGENCY MEASURES AND FISCAL LIMITATIONS: THE REAL WORLD SIGNIFICANCE OF SOME RECENT STATE BUDGET INNOVATIONS

During the past decade, especially the last 6 years, state governments have experimented with some potentially significant new fiscal instruments: 1. Rainy Day Funds, 2. contingency taxes, 3. contingency spending programs, and 4. formal limitations on spending or revenue. How well these new fiscal instruments operate in practice relies in part on how they are designed. The design of tax and expenditures limitations are especially critical if they are embedded in a state's constitution. The value of these 4 fiscal innovations is debatable. The basic argument for tax and expenditure limitations is that a limit has to be set on the growth of government. All 4 policies have one thing in common: if implemented, they would make the behavior of the state sector more predictable. The policies could have potentially important impacts on the role of the state sector in the national economy.