Fiscal Decentralization and Natural Disaster Mitigation: Evidence from the United States

How decentralized government structure influences public service delivery has been a major focus of debate in the public finance literature. In this paper, we empirically examine the effect of fiscal decentralization on natural disaster damages across the U.S. states. We construct a unique measure of decentralization using state and local government expenditures on natural resources, which include investment in flood control and mitigation measures, among others. Using state‐level panel data from 1982 to 2011, we find that states that are more decentralized in natural resource expenditures have experienced more economic losses from floods and storms. This effect is only pronounced in states that are at higher risks of flooding. Our findings suggest that fiscal decentralization may lead to inefficient protection against natural disasters and provide implications for the assignment of disaster management responsibilities across different levels of government in the U.S. federal system.     

Decentralization and Fiscal Discipline in Sub-national Governments: Evidence from the Swiss Federal System

This article analyses the relationship between decentralizationand the extent of fiscal discipline in the Swiss cantons between1984 and 2000. From a theoretical point of view, decentralizationand federalism can be associated with both an expansive anda dampening effect on government debt. On the one hand, decentralizedstructures have been argued to lead to a reduction of debt dueto inherent competition between the member states and the multitudeof veto positions which restrict public intervention. On theother hand, decentralization has been claimed to contributeto an increase of public debt as it involves expensive functionaland organizational duplications as well as cost-intensive, oftendebt-financed, compromise solutions between a large number ofactors that operate in an uncoordinated and contradictory way.Our empirical results show that in periods of prosperous economicdevelopment, the architecture of state structure has no impacton debt. However, the degree of decentralization influencesdebt in economically poor times: In phases of economic recession,administratively decentralized cantons implement a more economicalbudgetary policy than centralized Swiss member states.     

Fiscal Decentralization,Flat Administrative Structure,and Local Government Size: Evidence and Lessons from China

This paper examines the effects of fiscal decentralization and flat administrative structure on local budget size and program outlays. We test three related theoretical hypotheses in China's adoption of province‐over‐county scheme of financial administration. We provide evidence that both decentralization of expenditure and decentralization of revenue increase the size of local budgets; that the impact of the former far outweighs that of the latter with local budgets on a rising trajectory; and that discretion grants localities more means to increase their budget. These results show that as China's reform deepens the proportion of local outlay on administration declines because of more local discretion from eliminating the prefecture bypass between the province and counties. But neither decentralization nor increased local discretion has allocated more local resources for education, and both contribute to increasing outlay on economic development. The paper formulates tentative policy recommendations that carry potential application for other countries. Copyright © 2016 John Wiley & Sons, Ltd.     

Fiscal Decentralization and Federalism in Latin America

In contrast to years of centralization when the national governmentdominated the states and municipalities, fiscal decentralizationis now taking place throughout Latin America. This study considersthe reasons for this change. Fiscal decentralization meritsseparate attention because the financial independence of subnationalgovernments ultimately determines their success and power. Competingpolitical and economic explanations are tested on a sample of17 countries between 1985 and 1995. While federalism is a significantpredictor of greater fiscal decentralization, other factorssuch as presidential power, structural adjustment, level ofdevelopment, and country size also determine the level of fiscaldecentralization.     

Fiscal Decentralization and Provincial-Level Fiscal Disparities in China: A Sino-U.S. Comparative Perspective

Since China's 1994 fiscal reform, increasing concerns have been voiced about fiscal disparities across the country. Can local governments fairly and effectively fulfill basic public services such as primary education, public health, and social welfare? This essay traces the evolution of intergovernmental relations in China since 1978. The fluctuation of provincial level fiscal distribution over time and the underlying factors behind fiscal inequality, as compared to a decentralized American revenue system, are analyzed. The author, Zhirong Jerry Zhao of the University of Minnesota, argues for additional research on alternative measures of local fiscal capacity.     

Political Strategies and Fiscal Retrenchment: Evidence from Four Countries

Political strategy matters – especially in the case of unpopular reforms. This is the main argument of this article. It shows that the analysis of political strategies gives complementary insights into the causal mechanisms of reform politics. It helps us to understand how political actors successfully implement unpopular reforms. The article provides empirical evidence for this claim by means of an analysis of adjustment efforts in Sweden, Belgium, Canada and France during the 1990s. It is shown that governments acted strategically in two areas: they used strategic manoeuvres in the political sphere in order to circumvent veto players. And they employed strategic organisation and communication in the public sphere in order to dampen the risk of being punished by voters for the implemented policies.     

Fiscal Decentralization and Intergovernmental Transfers in Less Developed Countries

This article addresses the issue of fiscal decentralizationin developing countries, and the use of intergovernmental transfersto achieve this objective. We find that developing countrieshave more centralized fiscal structures and argue that thisis consistent with the theory of fiscal federalism. Economicdevelopment, however, does push the advantage toward decentralization.We also show that developing countries use a wide variety oftransfer instruments to fund local governments, and that theseinstruments give the national government varying degrees ofcontrol over local government finances.     

Decentralization and Corruption: Evidence from U.S. Federal Transfer Programs

While some recent evidence suggests that more decentralizationis associated with reduced corruption, no empirical work hasexamined whether different types of decentralization havedifferential effects on corruption. The theoretical literaturehas emphasized that expenditure decentralization will only beeffective if accompanied by the devolution of revenuegeneration to local governments. In this paper we examine thishypothesis empirically, by studying the mismatch betweenrevenue generation and expenditure in U.S. states. Largerfederal transfers are associated with higher rates ofconviction for abuse of public office, supporting the theorythat soft-budget constraints created by federal transfers arepotentially problematic.     

Decentralization,Fiscal Independence,and Poverty in the Philippines

Decentralization is a common public sector reform in developing countries. Its basic rationale is that local governments have an informational advantage regarding the needs and preferences of consumers. However, decentralization also has drawbacks. Foremost is the efficiency advantage of the central government in providing public services because of economies of scale and better access to resources. This study looked at the relationship between decentralization and poverty using data from Philippine cities and municipalities. Results suggest that decentralization, as represented by fiscal independence and measured by the share of locally sourced revenues to total local government revenues, is indeed associated with lower poverty. However, this effect is not linear—the marginal effect of decentralization on poverty diminishes as decentralization increases. Moreover, decentralization moderates the positive effect of good governance on poverty reduction and the magnitude of the relationship between poverty and decentralization is stronger in poorer municipalities than in richer ones.     

Behavioral Determinants of Citizen Involvement: Evidence from Natural Resource Decentralization Policy

This article examines the robustness of citizen involvement in decentralized governance. It develops two behavioral theories of citizen involvement and examines their relative explanatory power with survey data collected from subsistence households in forest‐dependent communities in Bolivia, Kenya, Mexico, and Uganda. Counterintuitively, the analysis finds that households that have been engaged with collective action the longest are the most likely to disengage from decentralized institutions once they confront crises. This result is interpreted in light of psychological self‐licensing theory: people justify noninvolvement with decentralization precisely because of their past effort. This result implies that policies that rely on local involvement may be unsustainable insofar as they fail to address the underlying vulnerability of local users. In order to ensure that citizen involvement with decentralized governance is consistent and effective, policies need to address the structural factors that make users vulnerable to crises.     

Fiscal Responses to COVID-19: Evidence from Local Governments and Nonprofits

The rate of expansion and the breadth of COVID-19 caught the world by surprise. From the perspective of nonprofit and public entities responsible for service provision, this pandemic is also unprecedented. The authors offer a RISE framework for navigating the fiscal effects of COVID-19 and rely on recent surveys to assess the response strategies of local governments and nonprofit organizations. They find that many nonprofits were hit fastest and hardest by the pandemic and that local governments are, essentially, trying to figure out their financial condition moving into the next budget cycle.     

The Effects of Fiscal Decentralization on Public Spending: The Korean Case

The local government reforms of the 1980s and 1990s in Korea involved devolution of substantial resources from the central to local governments. Fiscal realignment between the levels of government occurred during the same period of time. This article places these changes within the context of fiscal decentralization, using a variety of time-series regression techniques, in an effort to assess its impact. Findings suggest that fiscal decentralization serves as a constraint on the behavior of central government, while it serves as a booster on behalf of underdeveloped local governments. Fiscal decentralization may be a very effective means of self-government, and plays a key role in improving the fit between the provision of public goods and citizens' demand in Korea.     

The Impact of Subnational Fiscal Policies on Economic Growth: A Dynamic Analysis Approach

Much previous research has analyzed the effect of state and local taxes and expenditures on economic growth, but usually in a static manner. In this paper, we use panel vector autoregression (PVAR) to examine the effects of taxes and expenditures on state income growth. This methodology allows us to treat all variables in the model as endogenously determined. Our approach allows us to address the endogeneity problem inherent in fiscal policy research as well as to obtain results for both the short term and intermediate term (up to six years). Consistent with prevailing wisdom, taxes are shown to have a negative effect on economic growth, but the effect only is present in the short run. Public capital spending has a positive effect on growth in both the short and intermediate terms. Operational expenditures exhibit positive effects on growth over the entire analysis period.     

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.     

Fiscal Reaction to State Aid Uncertainties: Evidence from New York State

Late budgets have become increasingly present across the states and especially persistent in states such as New York and California. The combination of delayed states budgets and institutional constraints may trigger specific budgetary strategies. Uncertainty over state aid may lead school districts to over‐ or underestimate school budgets, which ultimately may have an effect on real property taxes and the amount of education consumed. Evidence from New York State school districts suggests that school districts react to uncertainty in the state budget through a combination of revenue, expenditure, and fund balance changes. The findings suggest that districts engage in “gaming” the institutional constraints, and tend to build up large fund balances as a response to perceived uncertainty.     

Effects of Term Limits on Fiscal Performance: Evidence from Democratic Nations

Political reputation models featureforward-looking, rational voters whore-elect incumbents based on their estimateof an incumbent's ability level. Fiscalpolicy is one of the ways an incumbentestablishes a reputation and therebysignals this ability level to voters. Thereputation-building framework implies thatterm limits should affect fiscalperformance; a term-limited incumbentplaces less value on reputation-buildingthan an incumbent eligible for re-electiondoes. We examine differences in fiscalperformance in democratic countries underalternative executive term limit regimes. Our results generally agree with the priorfindings of Besley and Case (1995a) whoanalyzed gubernatorial term limits in theAmerican States. We provide new evidencethat the fiscal effects of term limitsdiffer under a two-term rule versus asingle-term rule.     

Adjusting Fiscal Decentralization Programs to Improve Service Results in Bulgaria and Romania

Fiscal decentralization programs are works in progress, and expenditure roles often need to be adjusted to improve service delivery. The Balkan countries of Romania and Bulgaria, both needed for accession to the European Union in 2007, must demonstrate positive results from their fiscal decentralization programs in the social services area. Focusing on social service delivery, this paper explores how the design of fiscal decentralization programs, in the form of assigning intergovernmental expenditure roles and responsibilities, affects service performance. The authors conclude that fiscal decentralization requires the proper assignment of authority to match expenditure responsibilities and the policy and administrative capacity to carry them out.     

Fiscal Capacity, Fiscal Need, and Fiscal Comfort among U.S. States: New Evidence

During its lifetime, the U.S. Advisory Commission on IntergovernmentalRelations periodically published estimates of each state's relativefiscal capacity. This research note provides new estimates updatedto fiscal year 1994, the latest year for which all requisiteunderlying data are available. We find that dispersion in capacitynarrowed from 1987 to 1994, largely because the capacities ofCalifornia and the Northeast states, historically enjoying amplecapacity, fell relative to the national average. We also findthat these states generally experienced an increase in relativefiscal need, further narrowing interstate dispersion in fiscalcomfort (capacity relative to need). We conclude with evidencesuggesting that states with low fiscal comfort generally preferrelatively low levels of state and local public services.     

Implementing Fiscal Decentralization: A Case Study of a Regional Tax Agency in Italy

As a measure to enhance the fiscal autonomy of the region, in 2006 the Regional Government of Sardinia in Italy decided to establish a tax agency for managing regional taxes on holiday houses and boat and aircraft transit. Based on interviews conducted with the tax agency director and staff, this article traces the trajectory and outcome of events included in the implementation of this part of the regional government's fiscal policy. Drawing from this case, this article theorizes the process of implementing fiscal decentralization by addressing the issue of how fiscal policy decisions affect the management of tax agencies in the start‐up stage. Social mechanisms of learning, brokerage, and actor certification provide important linkages between fiscal policy choices and organizational change. On the whole, the research argument made in this article further contributes to institutionalist and processualist research trends in current research on organization studies and public management.