Institutional Constraints, Rule‐Following, and Circumvention: Tax and Expenditure Limits and the Choice of Fiscal Tools During a Budget Crisis

Abstract

One of the critical questions in local public budgeting and finance is how the confluence of two major developments in the local public sector—the proliferation of tax and expenditure limits (TELs) and the widespread budget crisis precipitated by the Great Recession—has affected local governments across the country. This research examines how TELs shape the fiscal behavior of municipal governments, specifically the pattern of use of different fiscal tools to respond to a major budget crisis. The fiscal tools available to local governments to address fiscal shocks include personnel‐related budget cuts, service‐related cuts, revenue‐raising responses, efficiency reforms, fund balance and inter‐fund transfers, external borrowing, and inter‐governmental approaches. To what extent did cities rely on specific tools and how did TELs influence cities’ fiscal choices? Using the results of a 2015 national survey of municipal governments in the United States with a population of 50,000 or more, this study shows that TELs have shaped the fiscal choices of cities in ways that can potentially redefine the relationships among city governments, their workforce, and citizens.

The effects of hierarchy, centralization and formalization on municipal fiscal health: An empirical test of the bureaucratic ideal

“…After experimenting with different possible instruments, the analysis uses real per capita revenues from service fees in 1982 as the excluded instrument. In the last four decades, city property tax revenues have severely declined because of the adoption in many states of local tax and expenditure limits in the 1970s and 1980s (see literature review in Jimenez ). Service fees have since become an important source of city revenues and have supported the expansion of governments in mid‐sized and large cities in the US (Jimenez ).…”

“…In the last four decades, city property tax revenues have severely declined because of the adoption in many states of local tax and expenditure limits in the 1970s and 1980s (see literature review in Jimenez ). Service fees have since become an important source of city revenues and have supported the expansion of governments in mid‐sized and large cities in the US (Jimenez ). It is assumed that the instrument is not correlated with measures of budgetary solvency because of the 30‐year measurement lag.…”

“…A considerable body of research in public budgeting shows that city budgetary solvency is a function of strategies adopted by government officials (how much to spend or tax, among others) as well as factors outside the control of these officials (economic conditions, socio-demographic characteristics of the local population, citizen demand for services, political and intergovernmental variables, among others) (Hendrick 2011;Jimenez 2013Jimenez , 2016aJimenez , 2016bJimenez , 2017aJimenez , 2017b. Major expenditure and revenue strategies are formally adopted by elected officials, but they continue to be reshaped as they are implemented by a city's bureaucracy.…”

Random forest versus logit models: Which offers better early warning of fiscal stress?

“…Average prediction accuracy for years 2009-2018 is presented in Table 5 preparedness of the country for potential difficulties can play a crucial role. For example, sizeable "rainy day" funds created during economic expansions help to minimize fiscal stress during recessions (Jimenez, 2017).…”

Surveying the Effects of Limitations on Taxes and Expenditures: What Do/Don’t We Know

“…The rankings in each category are ordinal and do not reflect magnitude. The index has been used in a number of studies suggesting a certain level of acceptance by academics (e.g., Bae & Jung, 2011;Cummings, 2013;Greer & Dension 2016;Jimenez, 2017aJimenez, , 2017bNicholson-Crotty & Theobald, 2011;Staley, 2015Staley, , 2017Yakovlev, Tosun, & Lewis, 2012). While the ADS TEL index has been used for state-level research, until recently, the local ADS index received less attention.…”