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Less fiscal oversight, more adjustment

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  • Borge, Lars-Erik
  • Hopland, Arnt O.

Abstract

In Norway, a reform in 2001 lifted budget and borrowing approval for local governments that comply with the balanced budget requirement (BBR). It was a concern that less fiscal oversight would lead to less fiscal discipline. A neglected effect however, was that the reform implicitly introduced sanctions for violating the BBR. In addition a register informing financial institutions about authorities in need of borrowing approval provides voters with reliable information about fiscal performance. We find evidence of stronger fiscal adjustment after the reform, in particular for local governments with past deficits that are at risk of being enrolled in the register. Moreover, an important finding is that this result also holds for local government with past deficits that do not end up in the register. Local governments with past surpluses are less affected by the reform, but there is some evidence in the direction of lower surpluses for this group.

Suggested Citation

  • Borge, Lars-Erik & Hopland, Arnt O., 2020. "Less fiscal oversight, more adjustment," European Journal of Political Economy, Elsevier, vol. 63(C).
  • Handle: RePEc:eee:poleco:v:63:y:2020:i:c:s0176268020300410
    DOI: 10.1016/j.ejpoleco.2020.101893
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    More about this item

    Keywords

    Balanced budget requirements; Fiscal adjustment; Local government;
    All these keywords.

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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