The effectiveness of institutional borrowing restrictions: Empirical evidence from Spanish municipalities

The need for restrictions on borrowing by subnational governments is a generally accepted notion that is justified both by public choice theory and by the fact that such restrictions are in force in the majority of decentralized countries. Furthermore, recent breaches of the Stability and Growth Pact of the European Union have led to the introduction of legislative tools aimed at balancing the budget at all levels of government have come to the forefront of interest in European public finance research. This paper is concerned with the financial situation and debt level of Spanish municipalities from 1988 to 2000. We have two main objectives: the first is to assess the value of mandatory limitations on municipal borrowing and past trends in the borrowing policies adopted by Spanish local authorities. The second is to develop an econometric model using panel data stratified by population size to measure indebtedness in Spanish municipalities. These measures enable us to formulate a series of hypotheses to explain municipal borrowing practices, which are then tested empirically. The evidence thus obtained appears to support the effectiveness of institutional borrowing restrictions to introduce some financial discipline in the borrowing policies adopted by local governments in Spain.     

A Review of: “Organizational Knowledge. The Texture of Workplace Learning by Silvia Gherardi with the Collaboration of Davide Nicolini”

ABSTRACT

This article provides new empirical evidence about Flemish municipal councilors’ use of financial information in the yearly budget debate. Since councilors generally do not handle information according to “standard use models,” we adopt an innovative method of data collection by scrutinizing their speech for the presence of financial information during the budget debate in Flemish municipalities. The incorporation of financial information in councilors’ contributions to the debate is conceptualized as a particular form of observable use of financial information. We quantitatively assess the presence of both budgetary and accrual financial information using a scoring technique taken from the management accounting literature. Additionally, we analyze whether various political and financial circumstances affect politicians’ mentioning of this information in their deliberations. Our results reveal a strong prevalence of budgetary information in councilors’ speech. This is influenced by both political conditions and the financial position of the municipality.     

Generally Accepted Accounting Principles and Federal Government Financial Reporting

This article considers the nature of generally accepted accounting principles and how well they match the purpose and activities of the federal government. A comparison of fundamental differences affecting accounting and reporting for private business and the federal government shows that although the generally accepted accounting principles do not work for the federal government, it does not follow that the federal government has nothing to gain from these principles.     

Implications of GASB's New Reporting Model for Municipal Bond Analysts and Managers

This article explores the implications of the new Government Accounting Standards Board (GASB) Statement No. 34 reporting model for municipal bond analysts and managers. Bond analysts and state and local government managers have overlapping objectives for the use of governmental financial information, but managers also face the costly task of implementing the new model. The new and improved financial information provided by the new reporting model will permit users of the information to better understand a government's long-term and short-term financial position and changes in financial position. The new model also has important ramifications for evaluating performance, particularly regarding the reporting of net costs for each program or function.     

Introduction — Building Local Government

In this and the last issue, the Australian Journal of Public Administration has profiled issues of current importance to Australian local/regional government. Contributors to Building Local Government looked at organisational change, performance measurement, leadership and social–capital–building roles in local government. Future of Regionalism now focuses on local and subnational government generally, in the financial, administrative and constitutional context. A major trigger for this focus is the present inquiry of the Commonwealth House of Representatives Standing Committee on Economics, Finance and Public Administration into the financial position of local government.     

Do technocrats boost the acceptance of policy proposals among the citizenry? Evidence from a survey experiment in Italy

Are policies proposed by technocrats more easily accepted by citizens than those proposed by traditional partisan actors? This is a crucial question, as politicians increasingly rely on technocrats for resolving “wicked problems” such as financial, environmental, and health crises. To answer this question, we conducted a survey experiment among 5000 Italian respondents. At the time of our experiment, Italy was governed by a “grand coalition” of various technocratic and partisan actors, enabling us to realistically vary the proponents of different policy proposals. Overall, citizens are more likely to accept policies proposed by technocrats as opposed to party leaders. In particular, we find that technocratic proponents boost policy acceptance even more for economic and valence issues. Furthermore, we find that this “technocratic effect” is generally stronger among citizens who are more likely to disagree with the policy content.     

Developing and Testing a Composite Model to Predict Local Fiscal Distress

One of the thorniest issues of intergovernmental fiscal relations is state oversight of local fiscal affairs. States have oversight responsibility and must take action when local governments run afoul of responsible fiscal behavior. Less accepted is how states can detect local financial difficulties before they become emergencies that require state takeover. Research in the 1970s provided some assistance to states wishing to recognize local financial emergencies. But the time has come to look at this issue anew, particularly with an eye toward predicting local financial problems before they become serious. This article describes a 10-point scale that predicts these problems and tests the scale to predict local fiscal stress in a sample of Michigan local governments.     

Policy without polity? Policy analysis and the institutional void

How should policy analysis respond to the changing context of policy making? This article examines three aspects of policy analysis in this changing context: polity, knowledge and intervention. It argues that policy making now often takes place in an ‘institutional void’ where there are no generally accepted rules and norms according to which politics is to be conducted and policy measures are to be agreed upon. More than before, solutions for pressing problems transgress the sovereignty of specific polities. Furthermore, the role of knowledge changes as the relationship between science and society has changed: scientific expertise is now negotiated rather than simply accepted. And, with the weakening of the state, it is far less obvious that the government is the sole actor to intervene in policy making. This article calls for a reconsideration of the analysis of policy making in the light of this changing context. Based on a contextual perspective it calls for a revitalization of the commitments of Harold Lasswell toward a policy science of democracy by proposing a new ‘deliberative’ policy analysis.

     

政府财务境况和财政风险：一个分析框架

评估财政风险应从政府拥有的公共资源及政府应承担的公共支出责任和义务2方面入手,从资产负债存量和财政收支流量两个角度来动态地考察。政府财务报告的目标之一是提供财务境况信息,以评估财政风险。利用政府综合年度财务报告所提供的信息来分析和评价财政风险,可提高评估的准确性,并使之制度化和规范化。从政府会计的角度出发,讨论了财务境况的定义和计量,提出了从环境因素、组织因素和财务因素3方面来综合评估财政风险的一个分析框架,并设计了一套财务指标体系用以评估和预警财政风险。     

The problem of regulatory arbitrage: A transaction cost economics perspective

Regulatory arbitrage, or the ability of financial firms to circumvent or neutralize rules, is a classic problem of financial regulation. This article draws on transaction cost economics (TCE) to reformulate this old problem, thus defining regulatory arbitrage as a contracting hazard arising from interactions between the regulator and regulated firms, given bounded rationality and opportunism. Following standard TCE, the article first characterizes the implicit regulatory contract in finance, focusing in particular on the mobile and elastic nature of regulated actors and financial assets as well as the contested utility of financial innovation. It is then argued that this incomplete and hazard-prone regulatory bargain must be matched with a governance structure that both adapts to unforeseen circumstances and avoidance strategies and copes with radical uncertainty about the welfare consequences of financial innovation. To that end, the article discusses how a governance structure here termed “relational regulation” might facilitate such ex post governance under uncertainty.     

Regional Mobilization in the ‘New Europe’: A Research Agenda

This Special Issue re-assesses regional mobilization in the ‘New Europe’. We anticipate that enlargement to Central Europe, the entering into force of the Lisbon Treaty and the largest economic and financial crisis since the birth of the European Community have affected how regional governments respond to Europeanization along three different dimensions: (1) the position they take vis-à-vis the process of EU integration more generally, (2) the strategies they adopt in response to Europeanization pressures and (3) their internal structures and dynamics of the EU member states as multi-level states. The article introduces a framework and formulates hypotheses to examine why and how Europeanization pressures in the ‘New Europe’ affect regional mobilization along these three dimensions. In the final section, the article also introduces the various contributions to this Special Issue and relates them to the analytical framework.     

The local roots of the participation gap: Inequality and voter turnout

It is generally accepted that the rich are more likely to participate in politics than the poor. It is also generally accepted that the probability than an individual will participate in elections is influenced by the gap between the rich and the poor. There is little agreement, however, about whether inequality across time and space increases or decreases participation. In this paper we examine the impact of inequality across space. We suggest that the impact of inequality depends crucially on whether it is defined in terms of variations between geographical units (‘segregation’) or within geographical units (‘heterogeneity’). Evidence to support this argument is drawn from multi-level British data. Heterogeneity has a mildly positive effect on participation but this effect seems to be outweighed by the negative impact of segregation. The effect of segregation, moreover, is most pronounced among the poorer sections of the population, indicating that geographical isolation among the poor ('ghettoization') leads to lower turnout among these groups.     

Issues in Program Budgeting

Funding arrangements for human service programs are often complex, particularly when intergovernmental financing is involved. There are two financial arrangements used by human services administrators to assure that money budgeted is spent as intended. Reallocation of unspent funds among jurisdictions and carryover to the following year of unspent balances are examined in this article based on examples drawn from two programs in Minnesota.     

The Democratic Duty to Oppose Brexit

What should be the position of democrats in response to the Brexit referendum? Many urge a duty to accept the result. This article argues the contrary. If someone is a UK citizen, has a belief that leaving the European Union will be damaging to the common good of the UK and is a convinced democrat, then that person has a duty to oppose Brexit. Neither of the two principal reasons for accepting the result—a claim of popular sovereignty or of parliamentary sovereignty—imply a duty not to continue to oppose. Arguments from political equality for simple majority rule do not apply when the alternatives are ill defined. More generally, popular sovereignty presupposes and does not replace constitutional democracy, and in a parliamentary democracy there is always a continuing right to oppose.     

A Response to "Building Administrative Capacity for the Age of Rapid Globalization: A Modest Prescription for the Twenty-First Century"

Professor Ali Farazmand's thought-provoking article advances the argument that the "administrative capacity to manage" governance and economic systems in the new age of "rapid change, hyper-complexity, and globalization" needs to be designed at both the macro and the micro levels. There is no doubt that traditional models of governance and public administration are no match for the challenges of the new chaotic environment, particularly in the aftermath of the outbreak of the global financial crisis that has largely discredited a world economic order founded on Anglo-American financial capitalism. Building administrative capacity worldwide is an imperative of our time.     

Financial Centre and Monetary Outsider: How Precarious is the UK's Position in the EU?

The UK's negotiating position in the area of ‘economic governance’ started from the assumption that there is a deep dividing line between insiders and outsiders of the ‘euro zone’. To protect the outsiders, the UK government did not ask for a veto, but for a safeguard mechanism that can postpone a decision in the euro area. This is exactly what David Cameron achieved in the negotiations with Council President Tusk. This article explains why the UK demands were so modest. Key is the peculiar situation of the UK being the major financial centre for a currency union to which it does not belong. Hence, the UK taxpayer needs protection from the City, and EU membership has helped to provide this. There is not much else a UK government could ask for.     

Alternative measures for the financial condition of the multifamily housing stock

Abstract

Indicators of the financial condition of the multifamily housing stock can potentially inform several policy issues, such as the loss of affordable rental units, multifamily developers’ access to capital, and the emerging secondary mortgage market for multifamily properties. Several rules of thumb exist for assessing financial condition. This article uses the Residential Finance Survey to investigate whether it matters, from a practical standpoint, which one is employed. Specifically, we ascertain how five measures—loan‐to‐value, debt coverage, rent‐to‐value, net operating income—to‐value, and vacancy loss ratios—relate to each other and rank properties.

We found that Pearsonian correlations among the measures varied dramatically. Factor analysis produced two factors, one corresponding to a rent‐flow measure and the other to a debt‐burden measure. Spearman rank‐order correlations revealed that with one exception, measures yielded noticeably dissimilar financial condition rankings. We conclude that single‐dimensional measures of financial condition should not be used in isolation.     

Paradigm,School, or Sect? Some Reflections on the Status of Rational Choice Theory in Contemporary Scandinavian Political Science

There is a marked difference between American and Scandinavian political science when it comes to the position of rational choice theory within the discipline. In the US it is said to have become "probably the hottest thing going in political science today", whereas in Scandinavia it seems at present to linger on the borderline between a school and a sect. As part of a possible explanation for this difference, this article points, on the one hand, to some differences between the status of American and Scandinavian political science and on the other hand to some differences between dominant intellectual traditions. The intellectual differences may in turn be linked to differences between American and Scandinavian politics. Thus, in some respects rational choice theory appears to be more congenial to the American than to a Scandinavian political setting. The article concludes with a short discussion of how ongoing changes in Scandinavian and, more generally, European politics might affect the scientific status of rational choice theory in the future.     

Debt in just societies: A general framework for regulating credit

Debt presents a dilemma to societies: successful societies benefit from a substantial infrastructure of consumer, commercial, corporate, and sovereign debt but debt can cause substantial private and social harm. Pre‐crisis and post‐crisis solutions have seesawed between subsidizing and restricting debt, between leveraging and deleveraging. A consensus exists among governments and international financial institutions that financial stability is the fundamental normative principle underlying financial regulation. Financial stability, however, is insensitive to equality concerns and can produce morally impermissible aggregations in which the least advantaged in a society are made worse off. Solutions based only on financial stability can restrict debt without accounting for the risk of harm to persons least able to bear the risk, worsen preexisting inequalities, destroy or impair the net worth of households, and impose unfavorable distributive consequences. This article offers a new approach to assist policymakers in developing and evaluating regulation to take criteria in addition to financial stability into account, but which do not undermine the aim of financial stability. It calls for a luck egalitarian approach, offering policymakers options to take the debtor's choices into account while still accounting for cognitive mistakes people often make in debt decisionmaking. It offers a general framework for the underlying principles for the regulation of debt: its focus is not on any particular forms of debt or its regulation but in structuring debt regulation more generally. It offers a set of recommendations on how regulators can take concerns about luck and equality into account in regulatory design.