Browsing by Author "Hou, Yilin"

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    Do Local Governments Save and Spend across Budget Cycles? Evidence from North Carolina
    (2012-03) Wang, Wen; Hou, Yilin
    The fiscal crisis encountered by state-local governments since 2008 has again made prominent the issue of how to better prepare for and stabilize expenditures during recessions. Does the stabilization function of government, and its theory, still hold? Previous studies focus on federal and state levels; only a few look at local governments. This article explores whether localities save and spend across the boom-bust cycle; we intend to identify the determinants of local government savings and estimate the impact of savings on stabilizing expenditures. Unlike some early evidence that shows countercyclical stabilization properties of local unreserved general fund balance, the empirical results of our study on North Carolina counties do not support the stabilization role by localities. This study carries timely and important implications for state/local policy making and financial operations; it also adds to the literature on the stabilization function of government.
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    Pay-as-You-Go Financing and Capital Outlay Volatility: Evidence from the States over Two Recent Economic Cycles
    (2009-12) Wang, Wen; Hou, Yilin
    Pay-as-you-go (pay-go or cash) and pay-as-you-use (pay-use or debt) are two mechanisms to finance capital projects. While pay-go faces multiple constraints, pay-use smoothes outlays, stabilizes tax rates, and improves inter-generational equity. Thus, pay-use has dominated infrastructure financing for decades. In recent years, there has been revived academic interest in pay-go as an alternate financing mechanism; however, there is a large gap in the literature and inadequate evidence on the effects of pay-go, especially its effects on capital outlay volatility. This paper fills in the niche. Examining state experience over the two recent economic cycles, this paper finds evidence that suggests that pay-go is associated with lower volatility in capital spending in the long run, but may increase short-run variability. We recommend that states couple pay-go in boom years with pay-use in lean years. In unison, the two mechanisms can reduce aggregate volatility and increase long-run stability of capital expenditures.