THE EMPIRICS OF THE MUNICIPAL FISCAL ADJUSTMENT

We summarize the literature that uses the vector error‐correction model approach to analyze the dynamics of the municipal fiscal adjustment. The international comparison between samples collected from entire countries and specific regions reveals interesting similarities, but also remarkable differe...

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Bibliographic Details
Published in:Journal of economic surveys 2017-07, Vol.31 (3), p.831-853
Main Authors: Martin‐Rodriguez, Maria, Ogawa, Hikaru
Format: Article
Language:English
Subjects:
Adjustment
Autonomy
Budget constraint
Budgets
Comparative studies
Dynamic Fiscal Adjustment
Economic models
Grants
International comparisons
Moral dilemmas
Moral hazard
Municipal finance
Municipal Policy
Public finance
Volatility
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Summary:We summarize the literature that uses the vector error‐correction model approach to analyze the dynamics of the municipal fiscal adjustment. The international comparison between samples collected from entire countries and specific regions reveals interesting similarities, but also remarkable differences. The main similarities are the fulfillment of the intertemporal budget constraint, the volatility of the budgetary components, and the importance of the intergovernmental transfers as an adjustment instrument. The most remarkable difference is the preponderant role of the own revenues in the USA, probably reflecting the larger fiscal autonomy of US municipalities. In most cases, the large municipalities seem to be more dependent on grants than their small counterparts, although this pattern is broken in Japan. Finally, partial evidence supporting the existence of moral hazard problems and the flypaper effect is provided.
ISSN:0950-0804
1467-6419
DOI:10.1111/joes.12179