Do constitutions matter? Evidence from a natural experiment at the municipality level

This paper asks if it does matter for taxes and government spending whether the mayor is elected (and recalled) by direct election or by the municipal council. It thus contributes to the economic literature on the impact of constitutions on economic outcomes. The effects are identified based on reforms of the municipal constitutions that were exogenous from the point of view of the municipalities in content and timing: each year, quasi-randomly selected groups of municipalities introduced the new constitution. This setup helps overcome endogeneity and identification issues that are common to many studies in the field using country level data. Using a new panel dataset of the 686 municipalities in three German states, this paper shows that direct mayoral election and recall through referendum only (as opposed to election and recall through the municipal council) reduce tax rates and increases spending on government employees.     

Effect of the Political System on Local Financial Condition: Empirical Evidence for Spain's Largest Municipalities

The significant relationship between public spending and political system has led to a considerable increase in the studies being carried out to analyze how the latter affects public spending, debt, and fiscal pressures. Given the effect that municipal finance has on the quantity and quality of the public services that future generations will enjoy, the aim of this study is to analyze the effect that political ideology and strength have on local government management overall through analysis of the financial condition. With this goal in mind, the study applied panel data methods that allow unobservable heterogeneity to be controlled to a sample of 153 of Spain's largest municipalities for the 1988–2008 period. The results show that the municipalities governed by progressive political parties are worse off financially than those governed by conservatives. Likewise, strong citizen support guarantees greater budgetary solvency.     

Public spending interactions and local politics. Empirical evidence from French municipalities

This paper aims at testing whether there exist spending interactions between French municipalities by estimating a dynamic panel data model. Our results suggest that there are some interactions between neighbouring municipalities as regards primary and investment expenditures. A positive relationship between municipalities’ wage bill and unemployment rates is likely to stress a rise of temporary employment in those municipalities that suffer from social troubles. Further, the estimation results show that these interdependences also exist between cities whose mayors have the same partisan affiliation. Finally, our results confirm the opportunistic behaviour of local governments, which increase all categories of public spending in pre-electoral periods     

Contracting Out Local Services: A Tale of Technical and Social Services

Governments face a fundamental choice between in‐house production and contracting out for the delivery of services to citizens. This article examines the importance of ideology, fiscal pressure, and size for contracting out in technical and social services. The analysis builds on a panel data set covering municipal spending on services in all 98 Danish municipalities. The authors find that contracting out is shaped by ideology in social services but not in technical services, which indicates that social services are the contemporary ideological battlefield of privatization. The analysis further reveals that economically prosperous municipalities are more likely to contract out social services, whereas contracting out of technical services is not influenced by economic affluence. Finally, larger municipalities contract out more in technical services but less in social services, demonstrating that the size effect is contingent on the transaction cost characteristics of the service.     

Explaining Interest Rates in Local Government Borrowing

ABSTRACT

This article analyzes the usefulness of municipal accounting information in the interest rates agreed on by financial institutions in the European context. Most of the literature has focused on municipal bonds, mainly in the United States. Our core contribution is to study which factors determine the interest rates on bank loans to municipalities. This framework is different, since there is neither a secondary bond market nor credit ratings, and therefore information asymmetry is higher. Specifically, we investigate if municipal financial indicators and financial reports’ quality have an influence on interest rates paid by Spanish municipalities in the period 2001–2008. Our empirical results indicate that, in general, the municipal financial situation exerts an influence on the credit policy of lenders, who charge a risk premium to those municipalities with less current surplus, which is an indicator of the municipality's saving ability. Furthermore, there is also some inertia in the municipal annual interest rate (year t ? 1 interest determines around 27% of year t interest). Other findings indicate that high levels of expenditures and debt per capita increase the interest cost of municipal borrowing. Finally, municipalities that disclose full detailed financial reports pay less interest because information asymmetry and transaction costs are lower.     

Taxing and Spending in Japan and Texas: Whose Cities Are Better Off?

This article compares the budgetary positions of Japanese and Texas cities. The appropriate criteria for evaluating municipal taxing and spending policies are identified. After determining which municipalities are better off, recommendations are offered for improving the less well-off cities' budgetary position.     

Who benefits? Intergovernmental transfers,subnational politics and local spending in Ecuador

ABSTRACT

This paper looks at the intervening role that local political elites play to translate government transfers into effective public spending. We want to know whether mayors spend IGTs to provide basic public services or infrastructure works, and whether such investments are instrumental to secure their advantage as incumbents. To test these arguments, we use a combined dataset of local public finances between 2001 and 2015 and electoral results for the 2009 and 2014 municipal elections in Ecuador. We find that mayors do respond to political incentives and make strategic spending decisions to invest on public services and visible infrastructure projects. However, we find selective spending was insufficient to secure incumbency advantage in the 2014 election. We argue that the executive intervened to block or limit the impact of spending decisions at the local level, thus creating an incumbency disadvantage for mayors. Further research is needed to explain this.     

Municipal Amalgamations and Common Pool Problems: The Danish Local Government Reform in 2007

Amalgamating municipalities carries risks in terms of public expenditure control. The tax base of the new amalgamated municipality represents a common pool resource. The incentive is to exploit it – that is, to spend before closing time. This article investigates last-minute spending by Danish municipalities before the local government reform in 2007 in which 271 municipalities were reduced to 98. It shows that local councillors exploited this situation to finance local projects before closing time. The article thus demonstrates the occurrence of common pool problems in amalgamation situations. However, it also shows that it is the availability of a common pool that matters, not its size.     

Consequences of an Anti-Corruption Experiment for Local Government Performance in Brazil

Decentralization reforms, implemented to improve efficiency and service provision, pose a challenge for federal governments that would like to ensure that federal resources are used appropriately by local governments. To overcome this challenge, some federal governments have implemented costly oversight programs aimed at improving municipal governance. For instance, in 2003, the Brazilian federal government introduced a randomized auditing program with the goal of improving municipal performance by exposing episodes of corruption and mismanagement. Yet, we know little about whether these types of programs actually lead to improvements in local outcomes, especially in terms of service delivery. We argue that audits provide opportunities for learning that should improve performance outcomes. To test this argument, we examine municipal performance in over 5,000 Brazilian municipalities from 2001 to 2012. We utilize the random assignment of audits and estimate difference-in-differences regressions. We find that audited municipalities experience greater improvements in performance overall compared to unaudited municipalities, though the effect size is modest. We also find evidence that the auditing program indirectly improves municipal performance. These results indicate that top-down oversight programs, such as the Brazilian one, are useful not only for improving transparency and accountability, but also for the provision of public services as well.     

Common pool effects and local public debt in amalgamated municipalities

This paper investigates whether the large scale municipal amalgamations in the German state of Baden-Wuerttemberg in the early 1970s led to considerable common pool exploitation. Through amalgamation the resources of several municipalities are pooled together disclosing the former independent municipalities a larger source of funds. Additionally, the pooling also decreases the cost of local public goods, as those have to be borne by the whole of the amalgamated municipality. By exploiting the huge variance in the amalgamation process in terms of number of participating municipalities, but also in municipality size or amalgamation strategy, we identify considerable common pool effects. Amalgamated municipalities show considerably stronger acceleration in debt accumulation compared to non-amalgamating municipalities. This common pool exploitation is stronger if more municipalities participate and when municipalities amalgamate by annexation.

     

Is Small Beautiful? Testing the Direct and Nonlinear Effects of Size on Municipal Performance

Although the relationship between managerial capacity and local government performance is well established, research into the direct effect of population size on performance has yielded mixed findings. Using data for 787 municipalities in the Brazilian state of Minas Gerais, this article examines the direct and nonlinear effects (moderating and curvilinear) of population size on municipal performance. Performance is measured in terms of property tax collection and averaged for the 2005–07 mayoral administration. Mayor's age (a proxy for experience) and educational attainment serve as measures of managerial capacity. After controlling for political and economic factors, both municipal size and mayoral capacity are positively correlated with property tax collection. However, population size neither moderates managerial capacity nor relates curvilinearly to municipal performance. These findings challenge the promoters of fragmentation, which has been the trend in transitional and developing economies.     

Fiscal policy and reelection in Brazilian municipalities

This paper uses a new panel of more than 2,000 Brazilian municipalities over 13 years to analyze the influence of public expenditures on the probability of mayors’ reelection. We examine Brazilian municipal elections from 1988 to 2000 using a logit fixed-effects model. The results suggest that mayors who spend more during their terms of office increase the probability of their own reelection or of a successor of the same political party. In particular, higher capital spending over the years preceding elections and current expenditures in election years are beneficial to Brazilian incumbent mayors.     

Ethics by Design: The Impact of Form of Government on Municipal Corruption

While trust in government at all levels is at an all‐time low, actual corruption at the municipal level has been declining. One factor often credited with this decline is the introduction of the council‐manager form of government. One of the key reasons the council‐manager form was created in the early 1900s was to act as an antidote to the corruption prevalent in the big‐city machine politics of the era. Despite this, no one has tested whether the council‐manager form has in fact influenced the decline in corruption rates. This article uses a rare events logit model to analyze corruption convictions in municipalities between 1990 and 2010 to determine which factors, including form of government, affect the probability that a corrupt act will occur. The findings indicate that municipalities with the council‐manager form are 57 percent less likely to have corruption convictions than municipalities with the mayor‐council form.     

When Do Municipal Consolidations Reduce Government Expenditures? Evidence on the Role of Local Involvement

Higher levels of government motivate municipal consolidations as a tool to increase efficiency in the local government sector, yet research shows that consolidations typically fail to deliver the promised spending reductions. Since mergers often require significant changes to institutional structures, one explanation is that local decision makers can substantially influence the outcomes of the consolidation process. To explore this possibility, this article contrasts “encouraged but voluntary” mergers with those that were “forced” on local governments in the state of New South Wales, Australia. Results show that voluntary mergers resulted in a 10 percent decline in total per capita expenditures, but forced consolidations failed to reduce spending across the board. The policy conclusion is that decision makers considering structural reform should invest in obtaining the support and participation of local government decision makers.     

Separate,Unequal, and Ignored? Interjurisdictional Competition and the Budgetary Choices of Poor and Affluent Municipalities

The fundamental value underlying the design of a fragmented system of local governance is consumer sovereignty. This system functions as a market‐like arrangement providing citizen‐consumers a choice of jurisdictions that offer different bundles of public services and taxes. However, the same choice also can facilitate class‐based population sorting, creating regions where fiscally wealthy jurisdictions coexist with impoverished ones. Some argue that the public market enhances the power of all consumers, whether poor or rich. Even if the poor are concentrated in some jurisdictions, they can exercise their voice to ensure that their government responds to their service needs. But does the voice of the poor matter as much as the voice of the rich in determining service levels in the local public market? Comparing the budgetary choices in poor and affluent municipalities, this article shows that in highly fragmented regions, some municipal services are provided the least in communities where they are needed the most.     

Size and e-Democracy: Online Participation in Norwegian Local Politics

This study of municipal e-participation in Norway, comprising local politicians as well as citizens, explores the impact of municipal size on online participation. First, the analyses show that the conventional predictors of offline participation also influence online participation, but the Internet encourages more activity among young people. Second, the same digital divides are generally found within the local political elite as among the citizens. Municipal size is, however, an exception. In the case of the local politicians, higher online participation rates are found in populous municipalities. This territorial digital divide is absent among the citizens. The findings indicate that the relatively high level of traditional participation in small municipalities also promote e-participation.     

Is the Tax Collection Effort an Indicator of the Financial Condition of Spanish Municipalities?

ABSTRACT

The financial crisis beginning in 2007 drastically affected the financial resources of different governmental organizations, causing critical imbalances between resources and expenditure needs. This study aims to analyze whether the municipal tax collection effort in Spain could be an indicator of the financial condition of these institutions. As a preliminary step, a new methodology is used to assess their financial condition. We test tax collection effort as an indicator on a sample of more than 5,000 Spanish municipalities with fewer than 75,000 inhabitants. Results confirm that the budgetary solvency dimension is associated with the tax collection effort for all municipalities studied. Furthermore, in municipalities with populations of fewer than 5,000 inhabitants, the level of the tax collection effort is indicative of most of the financial condition dimensions.     

Unfunded Mandates and Fiscal Structure: Empirical Evidence from a Synthetic Control Model

An unfunded expenditure mandate occurs when governments are required to provide a good or service by a higher level of government without an accompanying revenue source. There are no empirical studies providing causal evidence on the fiscal influence of intergovernmental mandates. This article examines Florida's 1990 constitutional Amendment 3, which sought to limit unfunded state mandates on municipal and county governments. The synthetic control method, an empirical technique for drawing causal inferences from case studies, estimates the effect of Amendment 3 on state expenditures and total transfers to local governments. The results indicate that state expenditures increased by an annual average of 9.5 percent, while state transfers to all local governments were unaffected. However, the municipalities protected by Amendment 3 saw intergovernmental revenue from the state decrease by 10 percent annually, which suggests that remaining mandates likely targeted special districts, encouraging the fragmentation of local public service delivery.     

Use of State Police Services for Local Policing: The Case of New Jersey

All states in the New England and Middle Atlantic regions of the United States provide State Police services without charge to municipalities without full-time local police departments. Efficiency and equity issues have resulted from this tradition and the development of local police departments or shared departments across neighboring municipalities in rural and exurban areas has been discouraged. These problems will diminish in scope as municipalities receiving the State Police subsidy opt out of the program and adopt local policing. We examine this potential by estimating models of the municipal decision to use the State Police for local policing among New Jersey municipalities with less than 15,000 population. We find that the elasticities of the decision to use the State Police for local policing with respect to population and median family income to be −1.1 and −2.3, respectively. If recent income and population trends in New Jersey municipalities using the State Police continue, our upper range estimate is that about 20 of the 90 municipalities using the State Police will opt out of the program in the next decade.     

The effect of legislature size on public spending: evidence from a regression discontinuity design

What is the effect of legislature size on public spending? An answer to this question is provided by Weingast et al. (J Polit Econ 89(4):642–664, 1981), whose “law of 1/n” posits that an increase in the number of elected representatives always leads to an increase in public spending. Because elected politicians regard the tax base as a common pool from which they can finance specific projects for their constituencies, and these specific constituencies internalize the full benefits of the projects, but only bear a fraction of the costs (projects are financed from the common tax base), fiscal inefficiency will increase with the number of representatives. In this paper, I test the validity of the “law of 1/n” using a dataset of 9325 German municipalities between 2008 and 2010. Through the application of a regression discontinuity design, many of the methodological pitfalls of previous studies can be avoided and a valid estimation of the causal effect of legislature size on public spending for German municipalities can be determined. The results do not corroborate the positive findings of previous studies, which generally supported the implications of the “law of 1/n”. For the years 2008–2010, I find a negative effect of legislature size on public spending in German municipal councils.