January 17, 2012
More than two years after the official end of the Great Recession, state governments still face significant budget deficits. The consensus solution to this problem is for states to save money during boom times (via budget stabilization or rainy day funds) and to draw on those savings during recessions. Unfortunately, numerous studies have shown that states do not save anywhere close to an adequate amount for this to be an effective strategy. Accordingly, this paper proposes a set of federal policy reforms to facilitate state savings.