The Effect of Fiscal Stress Labels on Local Governments’ Financial Management: Evidence from New York State Fiscal Stress Monitoring System

Hyewon Kang and Gang Chen

Public Finance Review, 2024, vol. 52, issue 5, 643-678

Abstract: State government's role in monitoring local governments’ fiscal distress gained importance after several local financial crises. Although many states have implemented state monitoring systems, the effectiveness of these systems has not been well understood. Using the case of the New York State, we conducted a regression discontinuity analysis to examine the effect of fiscal stress labeling on local governments. We find some evidence to support that fiscal stress labels lead local governments to improve their fund balance and cash positions. Specifically, school districts at the early stage of fiscal stress are more responsive to the labels than districts under more severe fiscal stress.

Keywords: financial condition; fiscal stress; financial management; state monitoring system; regression discontinuity (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:52:y:2024:i:5:p:643-678

DOI: 10.1177/10911421231199023

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