The impact of government structure on local public expenditures

Though the relationship between local government structure and expenditure has received considerable attention, there is little consensus as to how the features of representative government affect local expenditure. An exception is city council size, which has consistently been found to be positively related to spending. Previous results rely on cross-sectional estimation which may be subject to omitted variable bias. This paper analyzes three components of municipal governments—the form of government, the size of the city council, and the election method of city councilors. Once fixed effects estimation is employed, the positive relationship between city council size and expenditure disappears.     

Initiatives and government expenditures

This paper demonstrates that provisions for initiatives have important effects on government spending. Provisions for initiatives encourage legislatures to approve any proposal which might attract substantial popular support. If these proposals are more likely to advocate increases than reductions in expenditures, the presence of initiative provisions will increase total expenditures. Direct government expenditures per capita are significantly higher in both states and municipalities which permit initiatives.The Project in State and Local Government Finance of the National Bureau of Economic Research supported the research presented in this paper. Only I am responsible for the content.     

Bias in the formulation of local government budget problems

Government budgets are premised on forecasts of revenues and expenditures. These forecasts are subject to both stochastic error and strategic manipulation. Circumstantial evidence in the budgeting literature and in the popular media suggest that government officials routinely bias the forecasts underlying budgets. The research reported here asked three primary questions: To what extent are budget forecasts systematically biased? Why? (Are fiscal and electoral variables systematically related to the magnitude and direction of the biases?) What political and ethical difference do the biases make? From the literature and an analysis of the incentives facing politicians and bureaucrats, we developed hypotheses about budget biases. These hypotheses were tested using time series data for the City of Pittsburgh, Pennsylvania (1941–1983); the City of San Diego, California (1950–1982); and the Pittsburgh (Pennsylvania) School District (1946–1983). In these locales over the periods examined, budgets were systematically pessimistic; revenues were underestimated and expenditures were overestimated. The fiscal and electoral factors hypothesized to account for this pessimism are, however, very mixed in their ability to explain the biases.     

A new look at creative finance

Abstract

In his seminal work, Stegman contended that creative finance is an inefficient means of financing low‐income housing production. As evidence, he cited the high transaction costs associated with the complex financing structures that make a low‐income housing development feasible. In this article, we extend Stegman's work by examining the impacts of creative finance over time. We rely on data gathered as part of an evaluation of 36 housing developments sponsored by nonprofits.

The data indicate that most of the developments in our study remained financially viable in part because of their reliance on creative finance. We find evidence supporting three positive impacts of creative finance: the establishment of long‐term partnerships, the increased community acceptance of low‐income housing developments, and the improved technical skills of organization staff. We also find that none of the long‐term negative impacts are inherent in creative finance and offer four suggestions on minimizing them.     

Making rules credible: divided government and political budget cycles

Political budget cycles (PBCs) can result from the credibility problems office-motivated incumbents face under asymmetric information, due to the temptation to manipulate fiscal policy to increase their electoral chances. We analyze the role of rules that limit public debt, because borrowing is a necessary condition for aggregate PBCs. Since the legislature must typically authorize new debt, divided government can make these fiscal rules credible. Commitment is undermined by either unified government or imperfect compliance with the budget law, which can help explain why PBCs are stronger in developing countries and in new democracies. When divided government affects efficiency, voters must trade off electoral distortions and government competence.     

The dual illusion of grants-in-aid on central and local expenditures: A reply

In this Journal, Chu [Chu, H. Y. (2003). Public Choice, 114: 349–359] offered corrections for “inconsistencies” in the Logan model of dual fiscal illusion.] Logan, R. R. (1986). Journal of Political Economy,94: 1304–1318]. This paper shows that Logan (1986) introduced two prevailing models of fiscal illusion and chose to follow one of them for generalization. Chu has not corrected any “inconsistencies”. He has instead offered a generalization of the other type of illusion. This paper demonstrates that the Chu generalization suffers from multiple irrational and unachievable results, which is why Logan (1986) chose the original version in the first place.     

Urban local government finance in Nigeria: The case of Onitsha local government

Onitsha, located along the route that connects south-western and south-eastern Nigeria, has a very financially dynamic local government. Over one-quarter of the total revenues of this local government come from its market and motor parks. This is an unusual source for a local government that has perhaps the largest per capita revenue in Nigeria—almost N40, compared with the national average of N4.9. The procedure for collecting this revenue is regarded as highly successful since there is greater reliance on the citizens than tax officials. The volume of revenues collected has allowed the council maintain a large surplus revenue over a long period of time, which enables it to carry out important programmes of primary and adult education. It is also beginning to develop its property revenue collection system in collaboration with the Anambra State government.     

The determination of local public expenditures and the principal and agent relation: A case study

The principal and agent relationship is important in the public sector. There, elected or appointed representatives act on behalf of the citizens of their jurisdictions. This paper examines the importance of the budget referendum, which allows the principals to approve or disapprove the proposal of a set of agents, in the context of local public expenditure decisions. We test the null hypothesis that the institution of referendum, when compared to a nonreferendum institution, does not lead to significantly different expenditure behavior.     

Public service delivery in South Africa: The political influence at local government level

This paper analyses poor service delivery at local government level, which is attributed to the politicisation of administrative components in municipalities, resulting in poor local governance. The public service delivery system has been perceived as one of the most important ways of reducing poverty through poverty alleviation programmes. As part of the South African government's cooperative system, key stakeholders in municipalities ought to adopt an integrated approach to public service delivery. An integrated approach to public service delivery demands that local municipalities, together with relevant stakeholders, integrate processes and services to ensure effective and efficient service delivery. This ultimately will result in an improved standard of living and sustainable livelihood for communities. With regard to public service delivery, local municipalities have the obligation of creating income opportunities people, especially the poor, with the sole aim of contributing towards poverty reduction and the realisation of the expectations of people, as stated in the South African government's White Paper of transforming public service delivery. The political interface in local municipalities greatly affects effective and efficient administration, as well as growth opportunities. Administrators, therefore, have the important function of ensuring that explicit assignments of objectives and administrative functions are wholly separated from the policymaking activities of government. This paper, therefore, suggests that municipalities adopt the merit system and abandon the spoils system that is highly characterised by political favours and political interferences. Political favours and interferences are dominant in local South African government, and they hinder the process of providing services equally.