The Effects of Mayoral Power on Urban Fiscal Policy

Can mayors of American cities overcome the enormous constraints of environmental forces to exert some control over municipal spending priorities? Despite case study evidence suggesting that mayors can and do influence public policy making, the expectation of this research was that mayoral power in a comparative research design likely would not have a pronounced effect on city spending. Using multiple regression techniques and various socioeconomic, demographic, and political variables, the analysis indeed showed that mayoral strength was not a significant predictor of municipal expenditures for 1987. The findings also revealed only slight differences in the way the mayoral power variable operated when cities were divided by city government form (mayor-council vs. council-manager). The research did demonstrate that mayoral power was most likely to be effective in controlling city spending among localities having partisan ballots.     

Do EU funds crowd out other public expenditures? Evidence on the additionality principle from the detailed Czech municipalities’ data

European Union (EU) funds flowing into budgets of public sector organizations of its member states should be additional to their nationally funded expenditures. To investigate this additionality principle systematically, we develop a new empirical method. Our main hypothesis is that some of the EU-funded projects are crowding out national public expenditures. Not being able to reject the hypothesis would be consistent with violating the additionality principle. To test the hypothesis, we examine how EU funding translates into actual spending of relatively comparable municipalities of the Czech Republic. We innovatively match the municipal authorities’ budgetary data on EU-funded expenditure projects with their other, nationally funded, expenditures. We find no systemic crowding out of national public expenditures by EU funds at the level of operational programmes in the Czech municipalities’ data, which is consistent with no evidence of violating the additionality principle. Nonetheless, going down to the municipal level enables us to show how the results can pinpoint individual cases of EU fund’s potential mismanagement in Czech municipalities. Overall, we provide the first evaluation of the additionality principle at the level of individual recipients of EU funds and in doing so we develop a methodological approach potentially applicable to other fund recipients.     

Trade Liberalization and the Fiscal Squeeze: Implications for Public Investment

This article examines the impact of trade liberalization on the level and structure of government expenditures across countries, with particular emphasis on low income countries. It develops the argument that the policies employed during trade liberalization have resulted in a fiscal squeeze as a result of declining tax revenues and rising interest expenditures. To surmount this fiscal hurdle, expenditures on physical capital, which have negligible political ramifications, have been reduced. Other more politically sensitive expenditures, such as spending on social capital, have been financed by incurring additional debt. However, additional debt has exerted upward pressure on interest payments, further exacerbating the fiscal situation. The statistical analysis carried out to examine the evidence uses panel data for eighty developing and industrialized countries over the period 1970–98 and employs a fixed–effects regression framework to account for country–specific characteristics. The results indicate that trade liberalization has indeed resulted in declining revenues and higher interest expenditures and that these factors have contributed to the observed decline in infrastructure spending.     

The Spending-Service Connection

This research tests the relationship between state and local spending for health and hospitals, a set of health service measures, and three final policy outcomes—low birthweight infants, infant mortality, and child deaths. The analysis includes several proxies for service demand—state resources, percentage of single-teen births, and percentage of the population without health insurance. The multiple regression equations also incorporate a measure of federal spending on health and an indicator of state spending for Medicaid. This first stage of the analysis can account for only a limited amount of variation in per capita state and local health and hospital spending. Health expenditures, however, are prominently related to health workers per 10,000 population, while hospital spending buys hospital beds. The final step in the analysis uses path models. The results show that neither spending nor the intermediate-level health outputs (including a measure of prenatal care) are significantly related to the final three outcome variables. Single-teen births is the dominant influence in the final equations.     

DEFENSE SPENDING AND STATE ECONOMIC GROWTH*

Little evidence is currently available on the regional growth effects of federal defense spending. In this study, econometric models for state personal income and manufacturing employment between 1976 and 1985 are specified and estimated. Pooled cross-sectional time-series data are used, and the estimation procedure corrects for serial correlation, heteroscedasticity, and contemporaneous cross-sectional correlation. The results indicate that aggregate defense spending has a positive effect on both growth measures. However, when defense expenditures are disaggregated, only investment-type outlays appear to consistently affect state economic growth.     

Tradeoffs between Local Taxes and Government Spending as Determinants of Business Location*

Abstract. This paper investigates the effects of local fiscal policy on the location decisions of 3,763 establishments that began operations in Maine between 1993 and 1995. Empirical results, estimated from Poisson and negative binomial regression models, indicate that businesses favor municipalities that spend high amounts on public goods and services, even when these expenditures are financed by an increase in local taxes. This suggests that a local fiscal policy of reduced government spending, to balance a tax cut, may attract fewer new businesses than a policy featuring additional spending and higher taxes.     

Judicial Intervention and Local Spending

This study develops a methodology for examining the impact of court orders on local budgets and applies it to one of the most important areas of judicial involvement-local jails. During the 1980s an increasing number of local jails came under court order due to overcrowded facilities. In many counties this has been matched by equally rapid growth in jail capacity and expenditures. Based on simple comparisons of these trends and case studies of individual counties, previous research on court intervention has concluded that the courts have forced reluctant local governments to increase expenditures on corrections. However, past research on judicial intervention may be misleading because of inadequate controls for other factors that may affect both jail capacity and spending. We examine the determinants of jail spending for a national sample of jails in the mid-1980s. Our results indicate that court orders influence capacity expansion (their impact on current expenditures is less clear); however, other jail and demand factors may have a stronger effect. Contrary to conventional wisdom, our findings suggest that many jurisdictions, given adequate fiscal resources, budget for jail expansion when they need its not when forced by the courts to act.     

THE EFFECTS OF LOCAL GOVERNMENT AMALGAMATION ON PUBLIC SPENDING,TAXATION, AND SERVICE LEVELS: EVIDENCE FROM 15 YEARS OF MUNICIPAL CONSOLIDATION

We study how municipal amalgamation affects local government spending, taxation, and service provision in the Netherlands. Employing different models, different control groups, and a number of robustness tests, we find no significant effect on aggregate spending or taxation, although spending on administration is reduced. We explore whether this finding might hide amalgamation effects working in opposite directions for different types of municipalities (e.g., small versus large, or homogeneous versus heterogeneous), cancelling each other out. This does not seem to be the case. We also investigate whether amalgamation leads to better public services instead of lower spending, but find no evidence.     

Militarism and Human Rights

Through an analysis of the impact of military spending on economic growth, the author argues that militarism and human rights are incompatible. Implementation of the economic, social, cultural, civil and political rights set out in the International Bill of Human Rights requires national mobilization of economic resources. If limited national capital is consumed in excessive military expenditures the feasibility of rights fulfilment diminishes. The article outlines initial public policies designed to limit militarism and to allow international human rights to serve as the cornerstone of domestic and foreign policy.     

Secession of municipalities and economies of scale: Evidence from Brazil

In the 1990s, there was a growing process of administrative decentralization that culminated in the creation of 1,016 new municipalities in Brazil. The aim of this paper is to verify the impact of the municipal secessions on the public expenditures and its association with economies of scale. Based on a Differences‐in‐Differences methodology, the obtained set of evidence indicates that those municipalities that underwent a secession process increased their per capita capital expenditures by 14.7 percent. In addition, we show evidence that strongly suggests that this increase in expenses can be explained by a reduction in economies of scale and rent‐seeking behavior.     

A SIMULTANEOUS EQUATIONS MODEL OF FISCAL POLICY INTERACTIONS*

ABSTRACT Existing studies of fiscal policy interactions are based on single equation (SE) models of either taxation or expenditures, without specifying the underlying social welfare function, without taking account of budget constraints and without allowing for cost differences between jurisdictions. Taking all this into account, we derive an extended version of the linear expenditure system with policy interaction effects. We use this system to simultaneously estimate interactions in both taxation and different spending categories among Dutch municipalities. Our interaction parameters tend to be higher than those estimated using conventional SE models.     

LOCAL AMENITIES AND RENTS: TIEBOUT TAKES A VACATION*[link]

ABSTRACT This paper considers a two‐community model with free mobility, public expenditures set by majority voting, amenities that differ across communities, and two types of taxpayers sorting across communities according to different preferences. Residents pay local taxes, consume public services, and have the right to vote. Vacationers cannot vote, yet pay local taxes, and consume amenities. Amenities attract vacationers whose tax payments produce rents reducing the costs of public spending for permanent residents. These extractable rents produce stability in otherwise unstable equilibria. Relatively wealthy communities are generally less able than poor communities to extract rents.     

Demographic and budgetary influence on the geography of the poll tax: alarm or false alarm?

"The paper examines the influence of demographic change and the adaptation of local authority budgets on the level of poll tax between local authorities. The changes introduced by the Local Government Finance Act [in the United Kingdom] are argued to make almost all the possible variation between areas depend upon demography and local decisions on expenditure. Means of assessing local expenditure need are outlined and a consistent measure is developed which is used to estimate the relative contributions of changing need, tax base, new expenditures and grants over the period 1974-85 and up to 1991. 'New realism' in local authority spending is argued to combine with demographic change to allow radically reduced potential poll tax levies to be estimated than have been forecast by other sources. The reductions are particularly significant in inner London and many metropolitan districts."     

State Expenditures and Policy Outcomes in Environmental Program Management

Comparative state environmental research seeks to explain the factors contributing to intergovernmental environmental management. In pursuing the answer to this query, researchers have relied on either fiscal (expenditures) or nonfiscal (ranking) measures of state environmental effort. Respecting the debate surrounding state policy outputs and fiscal versus nonfiscal measures, we evaluate comprehensive state environmental management comparing spending and ranking measures in our analysis. Though pronounced differences do exist between the two models, we find pollution and state size to be the primary factors affecting a state's environmental effort no matter which measure is used.     

Changing Patterns of Fiscal Interdependence: Social Financing and Expenditure in Belarus'

An American economist stationed in the former USSR, based on interviews and data gathering at different levels of the territorial-administrative hierarchy, examines the evolution of processes of budget formation and still pervasive income redistribution in Belarus'. Considerable attention is devoted to the functioning of mechanisms of allocating and redistributing expenditures and collecting revenues among urban rayons in Minsk city and among oblast-level units in Belarus'. A particular focus is documentation of the devolution of responsibility for social spending from the central government to local levels of authority, as well as mechanisms through which local governments attempt to respond to pressing human needs. 8 tables, 8 references.     

EVIDENCE OF POLITICAL YARDSTICK COMPETITION IN FRANCE USING A TWO‐REGIME SPATIAL DURBIN MODEL WITH FIXED EFFECTS*

ABSTRACT This research proposes a two‐regime spatial Durbin model with spatial and time‐period fixed effects to test for political yardstick competition and exclude any other explanation that might produce spatial interaction effects among the dependent variable, the independent variables, or the error term. The study also derives the maximum likelihood estimator and variance–covariance matrix of the parameters of this model. Data pertaining to welfare spending by 93 departments in France during 1992–2000 provide significant empirical evidence in support of political yardstick competition. Departments governed by a small political majority mimic neighboring expenditures on welfare to a greater extent than do departments governed by a large political majority.     

How Should We Wage the War on Drugs? Determinants of Public Preferences for Drug Control Alternatives

When citizens are presented with alternative policy solutions to a given social problem, why do they choose to support one over another? In this article, the authors analyze a survey of residents of the five largest U.S. metropolitan areas to understand determinants of public support for spending on three major components of American drug control policy: law enforcement programs, rehabilitative services for addicts, and school‐based prevention programs. The authors estimate effects of self‐interest, political socialization, and policy attitudes on support for total drug control expenditures and on preferences for each drug control alternative versus the others. Effects of group self‐interest, societal interest, and political socialization change dramatically across dimensions of support. Policy attitudes are strong predictors of both types of support, whereas individual self‐interest measures are not associated with either dimension.     

TRANSBOUNDARY INCOME AND EXPENDITURE FLOWS IN REGIONAL INPUT-OUTPUT MODELS*

ABSTRACT. Nearly all regional input-output models have been constructed without a proper accounting of inflows and outflows of personal income and personal consumption expenditures. Typically invoked is a no cross-payments assumption, analogous to the no cross-hauling assumption for commodities. We present a new accounting framework based on the classification of flows according to the location of income generation, receipt, and spending, and argue that only flows endogenous in all three respects should be part of a closed regional I-O model. We use the framework to compute the upward bias in multipliers in a typical regional I-O model. We also present several methods for estimating transboundary flows.     

Political Equality and the Regulation of Election Spending by Parallel Campaigners

The regulation of political finance, including the funding of political parties and election campaigns, remains contentious in many democracies. A particular focus of debate has been the regulation of ‘parallel campaigners’– that is, non-candidate and non-party political actors – wanting to influence the election outcome by bringing to bear their economic resources. Drawing on both recent unsuccessful and current attempts at reforming the regulation of election spending by parallel campaigners in New Zealand, this paper explores the conflict between the democratic right to freedom of expression and the idea that all citizens should have a fair opportunity for effective political influence. It is argued that Joshua Cohen's principle of political equality, which entails the balancing of these two values, provides a justifiable framework for regulating political finance, including parallel campaign expenditures, in liberal democracies.     

Infrastructure shortfall in the United Kingdom: the private finance initiative and government policy

Investment infrastructure is essential for long term economic growth, sustainable regional economic development, and the quality of urban life. Yet the available evidence suggests a significant shortfall in current UK government investment on infrastructure, and a long term pattern of low investment compared to other European countries. Given the pre-occupation of the Labour government with managing expenditures within the parameters set by the previous government, and the vulnerability of any government to financial markets' valuation of current spending plans in relation to interest rates and currency exchange rates, there is little likelihood of major new public spending on infrastructure in the near future. In this context, the Private Finance Initiative (PFI) is very important for the government's plans to make up the shortfall. Although inherited from the previous Conservative government, the PFI has powerful advocates within the Labour government. The PFI is the formal mechanism by which government departments, agencies and instrumentalities, like the National Heath Service, utilise private sector investment capital and, in particular, pension fund assets, to revitalise public services. This paper sets out the institutional history of the PFI, beginning with the Thatcher government's Ryrie Rules, the efforts of the Major Conservative government to make it a viable operational practice, and the reasons why the new government supports PFI and has made significant moves to improve its effectiveness. Still we are sceptical about the future of the PFI. We show that the PFI has foundered upon fundamentally flawed design and the politicians' obsession with control of public sector spending. Notwithstanding recent `reforms', PFI may only succeed if the PFI process is decentralised and linked explicitly with regional development programmes. In any event, given the difficulties posed by the PFI process for private investors, perhaps different institutional responses to infrastructure shortfall should be contemplated, including the introduction of traded infrastructure bonds.