The impact of rate capping on local government expenditure

Abstract

In common with higher tiers of government worldwide, Australian state governments often adopt highly interventionist ‘one-size-fits-all’ policies aimed at improving local government efficiency and performance. In this article, we employ recent expenditure data to investigate empirically the short-term impacts of rate capping on municipal expenditure in the Australian state of Victoria and to explore whether it had differential effects on spending by different types of local authorities. We find that while total spending did not fall, budgets for ‘invisible’ services, like aged care and disabled services, did decline. Our analysis also shows that the impact of rate capping on the various types of municipal expenditures is uneven between the different categories of local authority. Our findings add to the existing literature on local government finance by demonstrating that the impact of rate capping varies according to different expenditure types classified by local council categories in a non-linear population framework.