Local fiscal responses to Procyclical changes in state aid

Phuong Nguyen-Hoang, Yilin Hou

Research output: Contribution to journalArticle

4 Scopus citations

Abstract

This article examines the asymmetry in local government responses to economic-cycle-based changes of state aid in a framework that distinguishes current outlay from noncurrent expenses and discretionary savings. Employing a panel dataset of Massachusetts municipalities for two economic cycles, we obtain three findings. First, we do not find evidence of property-tax relief during economic booms. Second, discretionary savings may be used to cover noncurrent outlays during booms and to offset spending cuts during recessions. Finally, we find a large (asymmetric) fiscal inducement that may emerge during recessions when state aid cuts coincide with property-tax shortfalls. While these context-specific results may not be easily generalizable, they necessitate further research into the role of local discretionary savings and cash reserves in intergovernmental fiscal relations.

Original languageEnglish (US)
Pages (from-to)587-608
Number of pages22
JournalPublius
Volume44
Issue number4
DOIs
StatePublished - Oct 1 2014

ASJC Scopus subject areas

  • Sociology and Political Science
  • Public Administration

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