Simple Rules for Determining How States Can Save for a Rainy Day

Abstract

Various articles have been written concerning the level of savings states should accumulate to weather an economic downturn, and since states have differing business cycle characteristics a one-size-fits-all approach does not seem to make much sense. Once the level of accumulated savings is determined, the next question concerns the savings rate that will enable the state to achieve its desired accumulated savings. This article builds on the work of Wagner and Elder (2007) and presents a simplified approach to determine the appropriate savings rate based on each state’s risk preferences.