Fiscal dynamics of local elected officials

The fiscal behavior of local elected officials is examined in a dynamic model where officials maximize an intertemporal objective function in two stages. Officials first decide upon an optimal mix of revenue and expenditure and then minimize loss and adjustment-cost functions. The model is tested using data from the 20 most populated U.S. cities whose mayor was elected on a four-year cycle. The empirical results support the model. Fiscal behavior differs between cities and local fiscal decisions made by elected officials are in part dependent on the timing of elections.