Local Fiscal Behavior Under State Provisions: Do Local Governments Smooth Revenue from Booms Across Busts?

47 Pages Posted: 7 May 2010

See all articles by Yilin Hou

Yilin Hou

Maxwell School, Syracuse University

Date Written: February 17, 2010

Abstract

In the study of state-local relations, interactions between the two layers in fiscal policy are an important area. States direct and exercise oversight over local governments, also provide substantial financial assistance. These have played into the state-local interactions in their fiscal policy. Research in this area has been increasing but inadequate, especially in regard to local policy options during a downturn. Localities are assumed or expected to adopt a counter-cyclical fiscal policy (CCFP) and practices. The questions are: Do they, can they? There has been an increasing literature on CCFP at the state level, but a much smaller one on the local level, especially in state-local interactions in this policy area. This paper is an attempt to move closer to consensus on the determinants of local savings and the effects of the savings. This paper uses the longest available, nationwide annual series county level data set for empirical analysis. The most important findings are: Localities save for future liabilities not recessions; they do not smooth from booms across busts; and state level fiscal institutions cast real impact on local finance. These findings shed light on local policy making and add to existing evidence for state level policy design.

Keywords: state-local fiscal relations, counter-cyclical fiscal policy, local government, service provision, revenue, boom and bust

JEL Classification: H20, H72, H77

Suggested Citation

Hou, Yilin, Local Fiscal Behavior Under State Provisions: Do Local Governments Smooth Revenue from Booms Across Busts? (February 17, 2010). Available at SSRN: https://ssrn.com/abstract=1601418 or http://dx.doi.org/10.2139/ssrn.1601418

Yilin Hou (Contact Author)

Maxwell School, Syracuse University ( email )

426 Eggers Hall
Syracuse, NY 13244-1020
United States
315-443-3114 (Phone)

HOME PAGE: http://www.maxwell.syr.edu/pa/cpr/Hou,_Yilin/

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