The Dynamic Response of Municipal Budgets to Revenue Shocks

Ines Helm and Jan Stuhler

American Economic Journal: Applied Economics, 2024, vol. 16, issue 4, 484-527

Abstract: We study the fiscal and tax response to intergovernmental grants, exploiting quasi-experimental variation within Germany's fiscal equalization scheme triggered by census revisions of population counts. Municipal budgets do not adjust instantly. Instead, spending and investments adapt within five years to revenue gains, while the adjustment to losses is more rapid. Yet the long-run response is symmetric. The tax response is particularly slow, stretching over more than a decade. Well-known empirical anomalies such as the so-called flypaper effect may thus reflect a short-run phenomenon, while long-run fiscal behavior appears more consistent with standard theories of fiscal federalism.

JEL-codes: E62 H71 H72 H77 R51 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: The Dynamic Response of Municipal Budgets to Revenue Shocks (2021)
Working Paper: The Dynamic Response of Municipal Budgets to Revenue Shocks (2021)
Working Paper: The Dynamic Response of Municipal Budgets to Revenue Shocks (2021)
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DOI: 10.1257/app.20220718

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