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Myopic or constrained by balanced-budget-rules? The intertemporal spending behavior of Norwegian local governments

  • Lars-Erik Borge

    ()

    (Department of Economics & Centre for Economic Research, Norwegian University of Science and Technology)

  • Per Tovmo

    ()

    (Centre for Economic Research, Norwegian University of Science and Technology)

The paper analyzes the intertemporal spending behavior of Norwegian local governments with particular attention to liquidity constraints imposed by balanced-budget-rules (BBRs). The main findings are: (i) On average, local government spending behavior is neither perfectly forward looking nor fully myopic. (ii) Local governments with good fiscal conditions behave more forward looking than other local governments. (iii) A high degree of party fragmentations is associated with less forward looking behavior. The overall assessment is that the departure from rational forward looking behavior reflects both liquidity constraints imposed by BBRs and myopic behavior.

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File URL: http://www.svt.ntnu.no/iso/WP/2007/5BBR_WP.pdf
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Paper provided by Department of Economics, Norwegian University of Science and Technology in its series Working Paper Series with number 8807.

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Length: 28 pages
Date of creation: 15 Jun 2007
Date of revision:
Handle: RePEc:nst:samfok:8807
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Phone: 73 59 19 40
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Web page: http://www.svt.ntnu.no/iso/WP/wp.htm
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  1. Borge, Lars-Erik & Rattso, Jorn, 1995. "Demographic shift, relative costs and the allocation of local public consumption in Norway," Regional Science and Urban Economics, Elsevier, vol. 25(6), pages 705-726, December.
  2. Jørn Rattsø, 2004. "Fiscal Adjustment under Centralized Federalism: Empirical Evaluation of the Response to Budgetary Shocks," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(2), pages 240-, August.
  3. Jappelli, Tullio & Pischke, Jörn-Steffen & Souleles, Nicholas, 1995. "Testing for Liquidity Constraints in Euler Equations with Complementary Data Sources," CEPR Discussion Papers 1138, C.E.P.R. Discussion Papers.
  4. Stephen P. Zeldes, . "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers 16-88, Wharton School Rodney L. White Center for Financial Research.
  5. repec:fth:pennfi:69 is not listed on IDEAS
  6. Douglas Holtz-Eakin & Harvey S. Rosen, 1989. "Intertemporal analysis of state and local government spending: theory and tests," Working Papers 89-4, Federal Reserve Bank of Philadelphia.
  7. Douglas Holtz-Eakin & Harvey S. Rosen, 1990. "Municipal Labor Demand in the Presence of Uncertainty: An Econometric Approach," NBER Working Papers 3516, National Bureau of Economic Research, Inc.
  8. Roubini, Nouriel & Sachs, Jeffrey D., 1989. "Political and economic determinants of budget deficits in the industrial democracies," European Economic Review, Elsevier, vol. 33(5), pages 903-933, May.
  9. Runkle, David E., 1991. "Liquidity constraints and the permanent-income hypothesis : Evidence from panel data," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 73-98, February.
  10. John Ashworth & Benny Geys & Bruno Heyndels, 2005. "Government Weakness and Local Public Debt Development in Flemish Municipalities," International Tax and Public Finance, Springer, vol. 12(4), pages 395-422, August.
  11. Nouriel Roubini & Jeffrey Sachs, 1988. "Political and Economic Determinants of Budget Deficits in the IndustrialDemocracies," NBER Working Papers 2682, National Bureau of Economic Research, Inc.
  12. Holtz-Eakin, Douglas & Rosen, Harvey S., 1989. "The `rationality' of municipal capital spending : Evidence from New Jersey," Regional Science and Urban Economics, Elsevier, vol. 19(3), pages 517-536, August.
  13. Douglas Holtz-Eakin & Harvey S. Rosen, 1993. "Municipal Construction Spending: An Empirical Examination," Economics and Politics, Wiley Blackwell, vol. 5(1), pages 61-84, 03.
  14. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  15. Borge, Lars-Erik, 2005. "Strong politicians, small deficits: evidence from Norwegian local governments," European Journal of Political Economy, Elsevier, vol. 21(2), pages 325-344, June.
  16. Douglas Holtz-Eakin & Harvey S. Rosen, 1989. "Municipal Construction Spending: An Empirical Examination," NBER Working Papers 2989, National Bureau of Economic Research, Inc.
  17. Dahlberg, Matz & Lindström , Tomas, 1996. "Are Local Governments Governed by Forward Looking Decision Makers?," Working Paper Series 1996:20, Uppsala University, Department of Economics.
  18. Shea, John, 1995. "Union Contracts and the Life-Cycle/Permanent-Income Hypothesis," American Economic Review, American Economic Association, vol. 85(1), pages 186-200, March.
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