OECD Journal on Budgeting

The OECD Journal on Budgeting is published three times per year. It draws on the best of the recent work of the OECD Working Party of Senior Budget Officials (SBO), as well as special contributions from finance ministries, academics and experts in the field and makes it available to a wider community in an accessible format. The journal provides insight on leading-edge institutional arrangements, systems and instruments for the allocation and management of resources in the public sector.

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It's spending that matters

From robust control theory to practical heuristics

The problems caused by state and local revenue volatility are inherently challenging. Oregon has an especially volatile revenue structure, which can cause all sorts of problems as the state moves through the business cycle. Nevertheless, we have concluded that these problems are caused less by revenue volatility per se than by adjusting spending up and down to match current revenue flows, from growing spending at unsustainable rates during booms and cutting back precipitously during busts. The mild recession of 2001-02 had a particularly severe aftermath in Oregon. This event shocked the state’s policy makers into addressing the revenue volatility issue, making sense of it, and taking steps that greatly mitigated the adverse effects of the “Great Recession”. This article describes three things: the public-policy processes that produced this moderately happy outcome, my own voyage of discovery as I observed/participated in these processes, and a set of practical mechanisms states can use to stabilise spending.

JEL classification: H11, H20, H70

Keywords: Oregon, Great Recession, cash flows, income taxes, revenue volatility


JEL: H20: Public Economics / Taxation, Subsidies, and Revenue / Taxation, Subsidies, and Revenue: General; H11: Public Economics / Structure and Scope of Government / Structure, Scope, and Performance of Government; H70: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Government; Intergovernmental Relations: General
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