The Dynamics of Municipal Fiscal Adjustment

David Wildasin and Thiess Buettner ()
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Thiess Buettner: ifo and Munich University
Authors registered in the RePEc Author Service: Thiess Büttner

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)
Pages: 25 pages
Date: 2005-07
New Economics Papers: this item is included in nep-pbe and nep-ure
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http://ifigr.org/publication/ifir_working_papers/IFIR-WP-2005-03.pdf (application/pdf)

Related works:
Journal Article: The dynamics of municipal fiscal adjustment (2006)
Working Paper: The Dynamics of Municipal Fiscal Adjustment (2003)
Working Paper: The Dynamics of Municipal Fiscal Adjustment (2002)
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