Abstract
This chapter starts with an introduction to the concept of the economic cycle and how Mankind has been coping with economic fluctuations; then it traces the evolution of the stabilization function of government: How this function was started and theorized as a necessary addition to the allocation and distribution functions and why fiscal policy is always necessary besides monetary policy. Section 2.2 discusses economic stabilization at the central level. This role carries with it some inherent problems, in particular three types of lag – those in identifying recessions, in taking policy actions, and in obtaining the designed effects of the policies. What is the core of the debate about the efficacy of the stabilization function and why such policy has long been practiced despite the absence of consensus? Section 2.3 elaborates on why the stabilization function that had long been assumed to be exercised solely by the central government was extended to the subnational level and how state governments in the USA experimented with their fiscal practices. The chapter concludes that the stabilization function at the subnational level is best taken as budget stabilization for smooth provision of public services across the economic cycle.
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Notes
- 1.
This is quoted from Du and Fang (1992, 371). The original in Chinese is: 周朝把“每年的收成分成四份,用其三而储其一; 每年余一,三年余三,即三年储备可供一年之用;以三十年为一大财政年,则有十年之蓄。”
- 2.
The original in Chinese is:《礼记-王制篇》载,“国无九年之蓄,曰不足;无六年之蓄,曰急;无三年之蓄,曰国非其国也。”
- 3.
Vol. II, 642, 644, quoted from Musgrave 1985, 45.
- 4.
- 5.
Musgrave 1978, 31.
- 6.
Symposium on budget theory. Public Administration Review 1950, 1(10), 20–31.
- 7.
For details, see New York State Consolidated Laws, Chapter 56: State Finance Law, Article VI: Funds of the State. New York State, Albany, NY; Section 92.
- 8.
Annual Report of the Comptroller for the Fiscal Year Ending March 31, 1946. State of New York, Albany, NY, 1946; 5.
- 9.
For details, see Florida Statutes, Title XIV: Taxation and Finance, Chapter 215: Financial Matters: General Provisions. State of Florida: Tallahassee, FL.; Section 215.32.
- 10.
For details, see Tennessee Code Annotated. State of Tennessee: Nashville, TN; 9-4-211.
- 11.
For details, see Act 76 of 1977 (repealed) and Act 431 of 1984; also Michigan Compiled Laws, Chapter 18: Department of Management and Budget. State of Michigan: Lansing, MI; Section 351–359.
- 12.
States’ Use of Surplus Funds. Congressional Budget Office: Washington, D.C., November 1998.
- 13.
Budgeting for Emergencies – State Practices and Federal Implications. GAO/AIMD 99–250. The United States General Accounting Office: Washington, D.C., 1999; 1–4.
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Hou, Y. (2013). From Economic Stabilization to Budget Stabilization. In: State Government Budget Stabilization. Studies in Public Choice, vol 8. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-6061-9_2
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