Learning is the only sure way to achieve ongoing performance improvement. Budgeting and learning are fundamentally orthogonal processes. Budgeting stabilizes, which is a good thing in itself, and promotes economy, but it discourages understanding of variation. Learning requires perturbation and...

In recent years, scholars have developed new analytical tools and financial instruments that could help governments cope more effectively with financial volatility. In this essay we show how states can achieve fiscal sustainability using financial instruments based upon mean-variance analysis:...

Budget policymakers should focus on expected revenue growth (average growth over history) and on the risk or volatility around that average. It makes sense to think about this risk as having two components purely random risk unrelated to the economy and risk associated with an economy that is...

Accurately predicting revenue growth is nearly impossible. Predicting the peaks and valleys of the business cycle is even more hopeless. This matters because tax revenues are largely driven by economic growth. Volatile, unpredictable revenue growth causes all sorts of unpleasant responses on the...

The authors write that Oregon couldn't afford to establish a rainy day fund; borrowing in times of state fiscal crisis is cheaper. The only workable alternative to countercyclical saving or borrowing is a substantial overhaul of Oregon's revenue code, and that's a high price to pay for fiscal...

Oregon has one of the biggest cyclical budget problems in the country, if not the biggest. Without a rainy day fund, Oregon's state government would have a budget shortfall ten years out of twenty; two of which would be equal to or greater than twenty percent of annual spending. Oregon could...

In this paper we leverage a national panel of US municipalities to show that a pair of heuristics identified from the behavioral economics literature, anchoring and the bandwagon effect, help to explain the number of years of expenses municipalities hold in reserve. We build our empirical case...

It is puzzling that the single most important explanatory variable for municipal reserves is the state in which a municipality is located. In this paper we leverage a broad panel of US municipalities to show that a pair of behavioral heuristics: anchoring and the bandwagon effect, are an...

In recent years, scholars have developed new analytical tools and financial instruments that could help governments cope more effectively with financial volatility. In this essay we show how states can achieve fiscal sustainability using financial instruments based upon mean-variance analysis:...