The Dynamics of Municipal Fiscal Adjustment

Thiess Buettner and David Wildasin
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Thiess Buettner: Centre for European Economic Research ZEW University of Mannheim
Authors registered in the RePEc Author Service: Thiess Büttner

Public Economics from University Library of Munich, Germany

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 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 point to an important role of grants in maintaining budget balance as fiscal imbalances resulting from lower revenues and higher expenditures including debt service are to a significant extent financed by subsequent increases in grants. Decompositions of the sample according to average city population and initial debt burden reveal significant differences across subsamples. In particular, the role of grants in maintaining budget balance is much more pronounced for large cities as well as for cities with a high debt burden.

Keywords: dynamic fiscal policy; US municipalities (search for similar items in EconPapers)
JEL-codes: H7 H70 H72 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2003-09-29
New Economics Papers: this item is included in nep-geo and nep-pbe
Note: Type of Document - .pdf; prepared on linux pc/LaTeX; pages: 32; figures: included
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: The dynamics of municipal fiscal adjustment (2006)
Working Paper: The Dynamics of Municipal Fiscal Adjustment (2005)
Working Paper: The Dynamics of Municipal Fiscal Adjustment (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwppe:0309007

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