This paper examines the effect of rainy day funds (RDFs) on state savings behavior. We find that states with RDFs have higher total balances than states without such funds and also have higher balances after adoption than before adoption. Furthermore, RDF deposits increase total balances dollar-for-dollar. While we cannot rule out that states planning future savings may adopt RDFs, our findings are robust to the inclusion of measures of savings preferences. In sum, these funds appear to belong to the growing set of fiscal institutions with real fiscal and economic consequences.
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Knight et al. (1999) studied this question.
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