Models of Municipal Budget Allocation: Empirical Data from Spanish Municipalities

The present work empirically analyzes diverse budgetary theories (incrementalism, garbage can, rational) in municipal cost programs, paying special attention to the utility of financial information in decision making. The sample analyzed corresponds to a set of Spanish city councils in the period 1996–2004, and the econometric methodology used is a dynamic panel data model. The main conclusion reached is that the budgetary allocation of municipal costs does not follow a random path; incrementalism is of particular importance, together with financial information variables. The utility of budgetary indicators is reflected in the fact that municipal managers adopt rational elements, although incrementalism remains the habitual behavior.     

Federalism and the European Union: A constitutional perspective

Constitutional questions have resurfaced in the last few years with regard to the European Union. The Maastricht Treaty is a kind of constitutional reform. The rejection of this treaty by Denmark in its first referendum, and the subsequent debate of the treaty that has taken place, raise questions about both the nature of the European Union, and the process by which its rules (constitution) get revised and approved. Similar questions surround the entry of Austria and the three, additional Scandinavian countries into the Union. Perhaps, no event called the European Union's constitution, or lack thereof, into question more that way in which a new President of the Commission was chosen during the summer of 1994. This paper will reexamine the European Union's structure and procedures from a constitutional perspective. Drawing upon the author's recently completed book, Constitutional Democracy, the paper will review the purpose for the Union's existence, the implications of this purpose for the structure of the Union (federalism versus confederation), the rules for making collective decisions in the Union, citizenship, and in particular, the procedures by which the European Union's “Constitution” is written and revised. The constitutional perspective adopted is taken from public choice. The political institutions of the European Union are examined relative to those rational, self-interested individuals would choose to advance their interests.     

Organizational and Spatial Determinants of Fiscal Stress: An analysis of Norwegian Municipalities

Two types of factors are thought to lead to fiscal stress of municipalities in Norway: municipal organization and spatial characteristics. Organizational and political factors include the rationality of the agency of government, the ability of the resource coordinator to achieve a balance, and the coordination of governmental policies. Spatial factors include industrial presence and north-south regional differences. Only the two spatial variables are significantly correlated with the budget difficulties. Case studies, though, show organizational factors and the interplay between organizational and spatial factors can be important determinants for fiscal stress.     

An experimental analysis of voting in the Stability and Growth Pact in the European Monetary Union

The Stability and Growth Pact (SGP) in the European Monetary Union shall deter countries from running excessive deficits by the threat of punishment, executed conditional on the outcome of a multistage voting procedure. We examine voting behaviour in an experiment which closely resembles the SGP’s design and find that the SGP enables larger countries to block punishment more often than smaller countries. In addition, we study an institutional modification of the SGP by excluding countries with excessive deficits from voting on other ‘fiscal sinners’. Our findings clearly suggest that this innovation would give the SGP sharper teeth than it actually has in reality.     

Appropriating Vs. Budgeting: A Comparison of Municipal Fiscal Processes

Conceptual and operational differences between the municipal fiscal processes of appropriating and budgeting are examined. Examination is within the framework of Illinois practice, in which some cities prepare an operating budget while others prepare only an appropriation ordinance. The author finds that there are indeed conceptual and operational differences; budgeting is conceptually a more formal and multi-dimensional process than appropriating, and such differences are reflected in the practices of Illinois cities. However, the operational differences are generally of small magnitude. The author recommends that initiation of a budget system be accompanied by programs for infusing fiscal decision making with new concepts and skills.     

How Municipal Property Tax Responded to State Aid Cuts: The Case of Massachusetts Municipalities in the Post‐2001 Fiscal Crisis

This empirical study examines municipal property tax responses to state aid cuts during the post‐2001 fiscal crisis. Using panel econometric techniques on annual changes in property tax levy by 351 incorporated Massachusetts municipalities in the period of 2002–2006, the results suggest that municipal governments offset about 9 cents of each dollar of net state aid cut through the increase of their property tax rates. It contributes to public finance literature on the extent to which local property tax can be used to stabilize municipal revenues when the intergovernmental revenue shrinks.     

Mueller on European Federation: A Reply from the Perspective of Australian Federalism

Dennis Mueller has recently made a significant contribution tounderstanding issues of federalism and confederalism in theEuropean Union – from a particular public choice point of view. Hefurnishes an important and provocative discussion of therelationship between the decision-making rules embodied in aconstitutional convention (or other means of drafting a form ofunion for constituent states) and the decision-making rules whichwill be contained in the constitution which is the outcome of thatconvention. However, Mueller's veiled preference for a certainideal form of federalism for Europe tends to reduce the parametersof his discussion, and gives his article an unrealistic and narrowfocus, despite its ambitious scope. The present article exploressome of the latent complexities in the public choice analysis anddesign of European integration, particularly by drawing on thewider experience of working federations and theory of federalism,using the unique and synthesizing Australian experience as a pointof departure. It argues that Mueller's analysis is biased towardsthe reduction of decision-making costs of European governance, andthus undervalues the external costs that may be imposed throughexcessive central government.     

Markets and Municipalities: A Study of the Behavior of the Danish Municipalities

The complex pattern ofMarket Orientation of the 275 Danishmunicipalities is analyzed. An MO-variableis constructed from a poll covering 12tasks, where municipalities are free toproduce the service or purchase it on themarket. Six potential explanations of theMO-pattern are operationalized. Four ofthose work: (1) MO is a modernization, (2)spreading by diffusion. (3) MO increases ifthe municipality is under economicpressure. (4) MO stays low if the fractionof the population that depends upon thepublic sector is large. Whilestakeholder/pressure group politics thusworks, explanations based onideology/partisanship fail. In theintegrated Copenhagen metropolitan areamost explanations fail.     

Wealth-Transfer Taxes in U.S. Fiscal Federalism: A Levy Still in Need of Reform

Wealth-transfer taxes are federal and state levies on the valueof estates, inheritances, and gifts. Because the federal governmentallows a limited tax credit, repeal of the federal tax has implicationsfor state governments. This article discusses the economic justificationof taxing wealth transfers and provides data on the importanceof the tax from 1977 to 1997. We measure the degree of variationin the use of the tax among the states and pinpoint those statesfor which death taxation is most important. Wealth-transfertaxation needs reform but, repeal of the federal tax is inappropriate.Instead, the state levies should be abandoned. We conclude byproposing to repeal the state taxes and reduce the federal taxby an amount equivalent to the value of the federal tax-credit.The resulting revenues, however, would not to be garnered bythe federal government but returned as revenue-sharing fundsto the resident state of the decedent.     

Negotiating in stages: National positions and the reform of the Stability and Growth Pact

Abstract.  This article examines the politics of the 2005 reform of the Stability and Growth Pact (SGP). It distinguishes between two stages in the reform process. The first stage delimited the negotiation space – confining reform into an interpretation of the formal clauses that prescribe SGP functioning – and set the reform agenda. In the second, decision-making stage, Member States engaged in high politics bargaining, more sensitive to their short-term (fiscal deficit) and long-term (fiscal sustainability) macroeconomic conditions, attempting to upload country-specific 'expenditure exceptionalism'. The authors of this article find a crucial disjunction in some Member States between positions held across the two stages. Strategic considerations, comprising the broader constitutional/political game and the need to demonstrate national macroeconomic credibility, account for such discrepancy in the two negotiation stages.     

Changing Forms of Federalism and Party Electoral Strategies: Belgium and the European Union

The introduction of federalism to a political system changesthe locus of power and offers new incentives to political parties.However, the way in which the new system is introduced influencesthe strategies of parties under the new federal arrangements.When federalism emerges through decentralization, the processencourages a greater focus on regional interests and regionalstrategies by parties. When federalism emerges through centralizationof authority, parties are encouraged to use a federal strategy,emphasizing common interests and common bonds across regions.Using Belgium and the European Union as examples, this articletraces changing party strategies in the wake of institutionalchange.     

Budgeting for Fiscal Stability over the Business Cycle: A Countercyclical Fiscal Policy and the Multiyear Perspective on Budgeting

This essay is a theoretical exploration of a new budgetary system to cope with fiscal uncertainty and instability. ¹ It examines policies requiring positive year-end balances and infers that annual budget cycles lead to a mismatch between the budget cycle and the continuity of public service provision. The author considers a multiyear perspective on budgeting as a potential solution, with countercyclical fiscal reserves to help ensure stability during fluctuating economic conditions. By adopting budget stabilization funds and keeping sufficient reserves, states can better maintain trend-level public services during recessions. Panel data analysis provides empirical evidence that such funds helped stabilize state general expenditures during downturns. The adoption of countercyclical fiscal policy and budget stabilization funds is a step toward a longer-term perspective on budgeting, thus promoting fiscal stability over the economic cycle.     

The States, Federalism and Political Science: A Fifty-Year Appraisal

The role of the states within the Australian federation has evolved significantly over the past 50 years. So has the interpretation of that role by political scientists. Until the early 1970s, the states seemed to be declining into financial and policy subservience notwithstanding their continuing primary responsibility for the delivery of public services. They then experienced a political and policy renaissance, accompanied by a more balanced political-science appreciation of the virtues of federalism. Since the early 1990s, the states' trajectory has become more uncertain.     

Environmental Protection and the New Federalism: A Longitudinal Analysis of State Perceptions

Surveys of the directors of state air and water quality programsin 1979, 1985, and 1990 are used to assess the directors' (and,indirectly, the states') reactions to the New Federalism ofthe 1980s and related federal efforts to increase the role ofthe states in environmental decisionmaking. Despite frequentclaims that the New Federalism led to significant improvementsin state-federal relations in the environmental arena, the surveydata suggest that these relations have changed little since1979.     

Intergovernmental Structure and Fiscal Management Strategies: A Crossnational Analysis

Does intergovernmental structure have a systematic effect on the impacts of local governments' fiscal policy responses? Using empirical data from more than 800 local governments in five countries, the article concludes that intergovernmental structure is associated with the impact attributed to various fiscal management strategies. Such strategies have generally had greater impact in local governments in federal systems than those in unitary state systems. There are similarities between federal and unitary local governments regarding the fiscal management strategies that have least impact, and both types stress the importance of productivity gains via technology. But the differences in relative importance and level of impact are more striking than the similarities. In particular, fiscal management strategies involving the relations of the local government with other governments, such as obtaining intergovernmental revenue and shifting service provision to other governments, have greater impact in significantly more federal systems than in unitary state systems. These federal local governments also experience greater impacts from increasing user charges and raising local taxes. In contrast, local governments in unitary state systems place greater reliance on the more politically expeditious strategy of across–the–board expenditure reductions and on reductions of capital spending. These findings suggest that local governments in more decentralized systems have greater flexibility to manipulate relations with other governments in order to enhance their own fiscal situation. The data also suggest that the government's level of fiscal stress is not systematically associated with the level of impact from most fiscal management strategies, especially in the unitary state systems.     

Electoral Institutions and Electoral Cycles in Investment Incentives: A Field Experiment on Over 3,000 U.S. Municipalities*

Through a field experiment and audit study, we test how the electoral calendar affects the use of local economic development policies. We explore how electoral timing along with local political institutions and party composition affect local governments’ offers of investment incentives to outside firms. We legally incorporated a consultancy and, on behalf of a real investor in manufacturing, approached roughly 3,000 U.S. municipalities with inquiries. The main experimental results show no greater tendency to offer incentives for investment anticipated prior to than after elections—a null result that is estimated with high precision. Limiting the sample to municipalities that specialize in manufacturing, the relevant subgroup, suggests that election timing matters in this most likely set of locales. Some observational findings include additional evidence on how direct elections of executives and partisanship correlate with incentive offers.