Journal Article

Substitution and Supplementation Between Co-Functional Policy Instruments: Evidence from State Budget Stabilization Practices

Hou, Yilin, Brewer, Gene A.

2010

Overview

Governments often use multiple policy instruments for pursuing policy goals with mutually reinforcing effects. These effects include supplementation and substitution. This article examines both effects by studying two instruments of state budget stabilization policy: general fund balances and budget stabilization funds. States normally maintain budget surpluses in the general fund. In recent decades, many also created separate budget stabilization funds to guard against economic downturns. Empirical results show that substitution occurs between these instruments. In other words, the influence of the first instrument is partially offset by the second. The second instrument also produces some independent impacts—called supplementation—that increase the overall influence of both instruments. Such selfreinforcement decreases over time, suggesting that multiple policy instruments are most effective in the initial stage of application.

• Publisher: Blackwell Publishing Ltd,Wiley Subscription Services,American Society for Public Administration
• Subject: Balanced budgets / Budget control / Budget deficits / Budget policy / Budgets / Business cycles / Economic Conditions / Economic crisis / Economic fluctuations / Economic recessions / Economic shock / Economic stabilization / Empirical research / Federal Government / Financial Policy / Fiscal policy / Government budgets / Government policy / Great Depression / Local Government / New Thinking About Grassroots Public Management Issues / Policy action / Politics / Public administration / Public finance / Public policy / Recessions / Reinforcement / Savings / Self Reward / Stability / Stabilization / Stabilization policies / Stabilization policy / State budgets / State Government / State Policy / Statistical Analysis / Surpluses / United States federal budget