Accounting for the State Fixed Effect for Municipal Cash Reserves: The Role of Financial and Institutional Variables

Kawika Pierson, Jon C. Thompson and Fred Thompson ()

Public Finance Review, 2022, vol. 50, issue 2, 169-205

Abstract: One of the most important predictor variables in multistate studies of American municipal cash reserves is the state in which a municipality is located, and to date no research has explored why. In this paper, we show that two broad categories of variables can account for a large fraction of this puzzle. Average differences in financial variables and state-to-state institutional differences combine to absorb over 80% of the importance of state fixed effects, with financial variables mostly accounting for why cities in some states save less than the national average, and institutional variables doing a better job of accounting for why cities in some states save more than the national average.

Keywords: municipal reserves; municipal revenue and expenditures; governmental institutions; explaining fixed effects (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:50:y:2022:i:2:p:169-205

DOI: 10.1177/10911421221094348

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