Local Fiscal Responses to Procyclical Changes in State Aid

• Autores: Phuong Nguyen-Hoang, Yilin Hou
• Localización: Publius: the journal of federalism, ISSN 0048-5950, Vol. 44, Nº. 4, 2014, págs. 587-608
• Idioma: inglés
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• Resumen

  • 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.