Impact of Stringent Budget Stabilization Fund Rules on US State Savings: Generalized Synthetic Control Method and Panel Data Analysis

Abstract This study examines the impact of Budget Stabilization Fund (BSF) rules on saving and spending behaviors in US states. BSFs stabilize state budgets during economic downturns, with varying deposit and withdrawal rules across states. Using Fixed Effects and Generalized Synthetic Control Method (GSCM) models, the study reveals that stringent deposit rules, such as high caps, surplus deposits, and revenue volatility ties, enhance BSF levels. This underscores the importance of well‐defined saving obligations in BSF frameworks. The findings offer policymakers valuable insights to refine BSF policies, improving budget stabilization during economic downturns and informing future BSF‐related legislation.