Sustainable budgeting and financial balance: Which lever will you pull?

D’Inverno, Giovanna, Francesco Vidoli and Kristof De Witte

European Journal of Operational Research, 2023, vol. 309, issue 2, 857-871

Abstract: During the past few decades, countries have experienced a remarkable increase in local expenditure levels to address rising local needs. However, the limited availability of financial resources, exacerbated first by the 2008 financial crisis and then by Covid19 crisis, has called for budget restrictions usually imposed by higher levels of government. In this paper, we evaluate the impact of a balance budget rule enforcement, exploring its effect on the local government cost efficiency and, in particular, considering the complex trade-off between efficiency and equity. Specifically, our identification strategy considers the exogenous introduction of a new budget balance rule that requires local governments to respect both an annual and a longer-term equilibrium criterion. The difference-in-differences analysis builds on a rich panel dataset covering all the public functions. We find that, on average, the budget rule enforcement exerted a positive effect on local government efficiency.

Keywords: OR in government; Local government performance; Balanced budget rules; Cost efficiency; Difference-in-differences (search for similar items in EconPapers)
JEL-codes: C54 D24 H61 H71 H72 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:309:y:2023:i:2:p:857-871

DOI: 10.1016/j.ejor.2023.01.036

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