A comprehensive model for the evaluation of standard expenditure needs and standard level of local services

ABSTRACT

This paper addresses the problem of the simultaneous evaluation of local governments’ standard expenditure needs together with the related level of standard public services proposing a new approach to fiscal equalisation based on quantitative methods. Standard expenditure needs are estimated using quantile regression, moreover robust non-parametric methods are employed for the computation of composite indicators of demand and supply factors. Data from English local authorities over the period 1997–2006 have been used to test the internal and external validity of the model.     

The expansion of the public sector in federalism: a comparative analysis of a macro level governing structure and government size

ABSTRACT

Utilising Oates’ fiscal federalism theorem, the Tiebout model and Berry’s common pool model, this paper examines the effects of four characteristics of a macro level governing structure on public sector employment using a mixed method approach. Regression analysis explores the individual effect of fiscal decentralisation, spatial fragmentation, interjurisdictional competition and jurisdictional overlap on the levels of local public employment; and the qualitative comparative analysis explores the complexities between the four macro characteristics and their combined relations to the levels of state public employment. The results of the statistical analysis suggest that more labour inputs are required to produce public goods and services to meet the needs of local residents. Moreover, the qualitative comparative analysis reveals causality asymmetry between these characteristics and highlights how different interactions of characteristics of a macro level governing structure affect different levels of public sector employment.     

Economic resilience after the Great Recession: an examination of unreserved fund balance in Michigan counties

ABSTRACT

This paper examines fiscal slack, in the form of unreserved fund balance, as a tool used by local governments to enhance economic resilience. It adapts ecological, engineering, and organisational definitions of economic resilience and investigate their relevance to local financial management in the United States after the Great Recession in 2008. Using group-based trajectory modelling, we identify different strategies of fund balances used by Michigan counties. The change of fund balance does not delineate any pattern theorised by the resilience concepts. We also find different factors that motivate local officials to manage their fund balances differently. The study suggests a nuanced understanding of fiscal slack used by local governments for economic resilience that goes beyond unreserved fund balance.     

Local Fiscal Stress in Sub‐Saharan Africa: The Kenyan Example

Abstract

This article identifies the fiscal weaknesses of local government in Africa, with concentration of the fiscal stress that is endemic to their condition. It then examines Kenya, as a case study in sub‐Saharan Africa. It continues to focus down on three Kenyan cities—Nairobi, Mombasa, and Kisumu, and identifies their six major revenue sources: land based revenues, regulatory revenues, income‐based taxes, service revenues, user charges, and government grants. Although some of the data is problematic, it is possible to determine several reasons for local fiscal stress. These reasons include limited access to stable financial resources, unstable national economic performance, centralized governmental control, mixed results of decentralization, and institutional and managerial weaknesses, including corruption in the collection and use of resources. Four recommendations are advanced to help these local governments: the development of local credit systems, the use of non‐governmental organizations, the clarification of the use of foreign aid, and the development of a greater capacity for governance. This articles main theoretical contribution is the development of an analytic framework for examining the reasons for fiscal stress in sub‐Saharan Africa. By examining revenue and expenditure patterns of the three localities, the article develops a data set that highlights some of the reasons for local government financial problems—the governments do not know how much revenue can be collected from a particular revenue source, they do not have records of existing sources of revenue, and they only collect about 40–60% of their estimated collections.     

Identifying and Coping with Fiscal Emergencies in Ohio Local Governments

Abstract

This study examines the reasons fiscal emergencies occur in Ohio local governments and the strategies that local governments use to recover. In Ohio, fiscal emergencies have regularly occurred predominantly at the local level. This study aims to reveal the internal process that both bring on and ameliorates fiscal emergencies. Previous studies failed to differentiate between fiscal stress and fiscal emergencies and did not include the role of the Ohio Fiscal Emergency Law in assisting local governments in restoring long term fiscal health. This study finds fiscal emergencies in Ohio were caused by: (1) the increased costs associated with unfunded state-mandated programs and, (2) major economical downturns brought on by local plant closings. Local governments were found to have responded in the short run by strategies such as targeted expenditure cuts and in the long run by increased the use of economic development.     

Hardening Budget Constraints: A Cross-National Study of Fiscal Sustainability and Subnational Debt

This study explores the financial sustainability of subnational governments in four different countries. Scholars argue that subnational fiscal capacity helps local governments deliver better public services and provide public goods, which in turn helps to promote economic growth. While administrative control by the central governments contributes to reducing moral hazard from the soft budget constraints, bottom-up strategies to manage fiscal profligacy also need attention. The study first provides understanding about the characteristics of central-local governance and management of subnational government debt of each country. Then, we test our hypotheses regarding local fiscal capacity and administrative control, including political-economic factors that may affect debt spending by local governments. Our findings show that subnational fiscal sustainability improves when the central governments have clear rules to intergovernmental transfers in place and more (market) liberal policies, meanwhile when subnational governments have a more fiscal capacity and less intergovernmental transfers they are able to manage their debt more soundly.     

Technological Innovation and Its Impact on Public Sector Efficiency and Performance: Aerial Imagery in Property Tax Assessment Administration

ABSTRACT

Technological innovations can help public organizations deliver higher quality public goods and services at lower average costs. While a considerable literature exploring the determinants of technology adoption and diffusion exists, much less is known on whether technology innovations improve public sector outputs. This study investigates the impact of high-resolution, oblique aerial imagery, an increasingly common technology used by local governments in the US, on the inspection efficiency and quality of property assessment administration. Aerial imagery is often argued to be a low-cost substitute to in-person inspections of property. Drawing on data from 2013 through 2017 for property assessing districts in Texas, aerial imagery use is found to improve the rate at which properties are inspected as well as improve the quality of assessments. The results further provide evidence that investments in aerial imagery are best justified on budgetary grounds rather than as a means to improve organizational performance.     

Fiscal Capacity Equalisation in Tanzania

Fiscal equalisation aims at enabling decentralised governments to supply similar services at similar tax rates. In order to equalise fiscal disparities, differences in both fiscal capacities and in fiscal needs have to be measured. This paper focuses on the measurement of fiscal capacity in a developing country. The current intergovernmental transfer system in Tanzania does not take differences in fiscal capacity into account. As a result, local governments in rich areas are able to generate considerably more revenue per capita than those in poor areas. Public services in poor areas are hard to finance. We propose a way of measuring fiscal capacities of local governments in Tanzania using poverty data. We use this measure to derive an equalisation grant that would support local governments that have a low fiscal capacity.     

Fiscal and political determinants of local government involvement in public-private partnership (PPP)

ABSTRACT

In this article, we estimate the main determinants of local government’s engagement in public-private partnership (PPP) projects using logistic panel regression. We use data from 2478 municipalities and cities in Poland from 2009 to 2016. The results show that municipalities with higher levels of indebtedness have a higher probability of opening PPP tenders while local units that are more dependent on central grants or receive more European grants are less engaged in PPP. We also found that the mayors of municipalities and cities with stronger electoral competition engage in PPP with a higher probability. These results are important for discussions on the efficient use of PPP. They show that local government decisions made in conditions of fiscal constraint and political struggle can blur the PPP’s value-for-money aim.     

The States' Role in U.S. Local Government Fiscal Crises: A Theoretical Model and Results of a National Survey

Abstract

This article hypothesizes four potential roles that states may play in dealing with local government fiscal crises: predict, avert, mitigate and prevent the recurrence of local fiscal crises. Based on a 50‐state telephone survey administered by the author to members of the National Association of State Auditors, Comptrollers and Treasurers in 2002, this article presents detailed information on states' roles in dealing with actual local government fiscal crises. The research found that ten states had formal definitions of local government fiscal crises while the remainder varied between having a working definition, having no definition, or leaving it to local authorities to define a fiscal crisis for themselves. Although the majority of states lacked a rigourous, legal definition of what constitutes a local government fiscal crisis, 36 states reported that they had had such crisis in recent history in their states. Seven overlapping categories of state approaches emerged: the directive approach, the proactive approach, the ad hoc approach, the special legislation approach, the reform approach, the takeover approach, and the responsive approach. States reported a wide range of activities under each of the hypothesized roles. In general, states tended to get involved after a crisis rather than before one occured.     

The Flypaper Effect Revisited: Intergovernmental Grants and Local Governance

Abstract

Local governance arrangements shape the incentives of local actors, which may in turn influence fiscal choices. By emphasizing the role of local government institutions in local fiscal choices, we seek to bridge between median voter and Leviathan models prevalent in the literature. We then offer some preliminary evidence to support this explanation by empirically testing several propositions regarding the flypaper effect in intergovernmental grants. One limitation of the median voter model is that the model does not consider political institutions and their influences on government expenditures. In this study, we attempt to capture the influence of political dynamics in determining public expenditures by considering institutional variables. Test results show that the political institutional variables could be one of the explanation variables for the flypaper effect.     

Merging county administrations – cross-national evidence of fiscal and political effects

ABSTRACT

While many central governments amalgamate municipalities, mergers of larger county administrations are rare and hardly explored. In this article, we assess both fiscal and political effects of county mergers in two different institutional settings: counties act autonomously as upper-level local governments (Germany), or counties being decentralised branches of the state government (Austria). We apply difference-in-differences estimations to county merger reforms in each country. In both cases, some counties were amalgamated while others remain untouched. Austrian counties (Bezirke) and German counties (Landkreise) widely differ in terms of autonomy and institutions, but our results are strikingly similar. In both cases, we neither find evidence for cost savings nor for staff reductions. Instead, voter turnout consistently decreases in merged counties, and right-wing populists seem to gain additional support. We conclude that political costs clearly outweigh fiscal null benefits of county merger reforms – independent of the underlying institutional setting.     

Wage Subsidy and Labour Market Flexibility in South Africa

Abstract

We use a general equilibrium model to analyse the employment effects and fiscal cost of a wage subsidy in South Africa. We capture the structural characteristics of the labour market with several labour categories and substitution possibilities, linking the economy-wide results to a micro-simulation model with occupational choice probabilities to investigate the poverty and distributional consequences. The employment impact depends greatly on the elasticities of substitution of factors of production, being very minimal if unskilled and skilled labour are complements in production. The impact is improved by supporting policies, but the gains remain modest if the labour market is rigid.     

What Should We Do? Public Attitudes about How Local Government Officials Should Confront Fiscal Stress

Despite strong scholarly interest in the topic of fiscal stress, little attention has been paid to understanding how the general public thinks local governments should respond to situations where declining revenues endanger service levels. This study reports findings from a survey of 660 residents undertaken between November 2006 and January 2007 in the US state of Michigan to examine their support for eight potential strategies to cope with fiscal stress in five different local government services. We find that the public has a surprisingly nuanced perspective about these strategies and on their use for different services. Our findings may provide local policymakers with some insights about how to respond to fiscal stress.     

Can alternative service delivery save cities after the Great Recession? Barriers to privatisation and cooperation

ABSTRACT

Cities continue to face fiscal challenges after the Great Recession and alternative service delivery is being emphasised as a solution. How promising is alternative service delivery as a solution and what are its barriers? Regression analyses using 2012 survey data of US local governments show that local governments manage procedural barriers, but structural barriers of economy and demography hinder privatisation and cooperation. Places with a housing bust (measured as decline in home values) can use privatisation, but not places with more or increased poverty. Cooperation is more promising for places with increased poverty, but lack of a willing partner hinders this spatially constrained tool. Neither cooperation nor privatisation is promising for places with low home values. State governments must level the playing field for localities with weak economies if market approaches to service delivery are the main tools for local governments to survive fiscal stress.     

U.S. treasury department studies of federal- state-local fiscal relations: the context,the major themes,and the outcome

This article provides an assessment of the condition of the literature on several major issues of Federal-State-local fiscal relations. The assessment is provided in the context of a three-volume report on Federal-State-local fiscal relations recently published by the U.S. Treasury Department. The author was a major participant in the studies who generally views them favorably, but who also raises his real concerns about a number of matters.

This article summarizes and evaluates certain aspects of the economic theory of federalism, the intellectual underpinnings of the report. This article addresses the institutional context in which the report was written, which helped shape its approach, content, and conclusions. The report itself generally lacks detailed recom-mendations.

Three main themes of the report are addressed in detail in this article. These are: (a) issues relevant to programs of general-purpose fiscal assistance, which include the adequacy of any potential improvements that might be made in measures of the fiscal capacity of State and local governments; (b) the role, if any, for tax subsidies to State and local governments through the deductibility of State and local taxes in the computation of individual Federal income taxes, and the exemption from Federal income taxes of interest paid on bonds and notes issued by State and local governments; and (c) the projection of the long-term outlook for the fiscal condition of the State-local sector on a current services basis, compared with projections of the long term outlook for the Federal government.     

Privatisation,contracting-out and inter-municipal cooperation: new developments in local public service delivery

ABSTRACT

We briefly review recent advances in the empirical analysis of the privatisation and inter-municipal cooperation of local public services and discuss the potential of these studies. The core issues examined include the identification of factors driving delivery choices and the effects of privatisation and cooperation on service provisions. In addition to reporting the specific empirical findings of each study, we highlight the innovative methodologies that they each adopt. Finally, we outline a number of potential avenues for further research.     

Political leadership in local government: T. Dan Smith in Newcastle‐upon‐Tyne∗

Recent initiatives for modernising local government have ignored the potential contribution of parish and town councils. This article critically examines English parish and town councils in the context of the current debate about the need for government to be more responsive to community needs. It considers measures to enhance the capacity of these grassroots councils by recalibrating the responsibilities and resources between tiers of local government. It concludes by setting out possible reforms to facilitate the contribution of these local councils to the modernising agenda as both representatives of the community and potential providers of local services.     

Is cooperation cost reducing? An analysis of public–public partnerships and inter-municipal cooperation in Brazilian local government

ABSTRACT

In local government systems worldwide, financial pressures have obliged local authorities to focus on cost-efficient methods for providing local services, including inter-municipal agreements and public–public partnerships. However, in comparison with municipal mergers, privatisation and other approaches to the problem, the cost impact of the cooperative provision has not yet been thoroughly examined empirically. Moreover, available empirical research has largely concentrated on waste disposal in developed countries. The present paper seeks to contribute to the empirical literature on inter-municipal agreements and public–public partnerships by comparing their impact on costs with ‘stand-alone’ provision in a range of non-waste local services. In contrast to the bulk of existing studies, our analysis takes place in a developing country context by examining Brazilian local government over the period 2013/15. We found that – on the whole – cooperative provision is less expensive than the ‘stand-alone’ provision for the services studied. Our results can be explained by the size and composition of the population, together with the politics for cooperation.     

Tax Innovations and Public Revenues in Sub-Saharan Africa

Abstract

We study the effect of two tax innovations – value added taxes (VAT) and autonomous revenue authorities (ARA) – on tax revenues in sub-Saharan Africa. The dataset consists of 47 countries over 1980–2010. We find that VATs have no effect on total tax revenues, neither in the short- nor in the long-run. ARAs lead to higher tax revenues in the short- and medium-run, but the effect dissipates over time. The main conclusion is that tax innovations are not a panacea to overcome the revenue shortages in African countries, but they are helpful in the short- and medium-run.