The Dynamics of Municipal Fiscal Adjustment

David Wildasin () and Thiess Buettner ()

No 2005-03, Working Papers from University of Kentucky, Institute for Federalism and Intergovernmental Relations

Abstract: The 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.

JEL-codes: H70 H72 H77 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe and nep-ure
Date: 2005-07
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Related works:
Working Paper: The Dynamics of Municipal Fiscal Adjustment (2002)
Working Paper: The Dynamics of Municipal Fiscal Adjustment (2003)
Journal Article: The dynamics of municipal fiscal adjustment (2006)
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