Cutback management and path dependency: evidence from the two recent recessions

Abstract

ABSTRACTPrevious studies have shown that, in response to economic recessions, governments strategically choose certain strategies to cut spending and increase revenues. However, little is known about the factors that influence their decisions to rely on certain strategies rather than others. To fill this gap in the literature, this study examines and compares the cutback strategies of local governments across the two recent recessions – the ‘dot-com bubble’ in the early 2000s and the Great Recession in the late 2000s. Using general-purpose local governments in New York State as a sample, this study finds that local governments generally employ the same cutback strategies during multiple periods of fiscal stress, following a ‘path-dependent’ pattern. Based on this finding, we conclude that previous cutback actions play an important role in predicting a government’s current cutback strategies.