| Abstract: |
This paper uses Carroll's (1992) buffer stock model to study government
savings behavior exemplifi ed by the Unemployment Insurance (UI) programs of
U.S. states from 1976 to 2008. We find strong empirical support for the model
from regressions and simulations. Empirically, we fi nd that political
consump- tion, defi ned in the context of the model from discretionary
components of UI benefi ts and taxes, rises when savings and other spendable
resources rises. We calibrate and simulate the model using the methodology
pioneered by Jappelli, Padula, and Pistaferri (2008) and we find the model
fits well. A key implica- tion is that intertemporal planning by governments
is expressed by a trade-off between impatience (politicians' desire to
immediately expend all savings) and risk aversion (politicians' fear of
running out of resources to support UI). We quantify the amount of fiscal
stimulus from the UI program under buffer stock saving. |