The Dynamics of Municipal Fiscal Adjustment
AbstractThe dynamic fiscal policy adjustment of local jurisdictions is investigated empirically using a panel of more than 1000 U.S. municipalities over a quarter of a century. Distinguishing own-source revenue, grants, expenditures, and debt service, the analysis is carried out using a vector error-correction model which takes account of the intertemporal budget constraint. The results indicate that a large part of the adjustment in response to fiscal imbalances takes place by offsetting changes in future expenditures. In addition, the results show that fiscal imbalances are financed to a significant extent by subsequent changes in grants. Decomposition of the sample according to average city population reveals that the basic pattern of fiscal adjustment is robust, although intergovernmental grants play a much more pronounced role in maintaining budget balance for large cities.
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Bibliographic InfoPaper provided by University of Kentucky, Institute for Federalism and Intergovernmental Relations in its series Working Papers with number 2005-03.
Length: 25 pages
Date of creation: Jul 2005
Date of revision:
Other versions of this item:
- H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
- H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-06-03 (All new papers)
- NEP-PBE-2006-06-03 (Public Economics)
- NEP-URE-2006-06-03 (Urban & Real Estate Economics)
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