Fiscal Capacity Research Articles

Territorial Disparities in COVID-19 Vaccination in Romania

AbstractThis paper explores relationships between vaccination coverage and indicators at the level oflocal administrative units for the case of rural localities of Romania. Positive correlations have been identified in relation to fiscal capacity, coverage of the population with general practitioners, COVID‐19 incidence rate and absence of a marginalized community within the locality. Regional differences are again highlighted in the analysis. This means that there is at least partially an overlap of the disadvantaged rural areas with the ones registering low vaccination uptakes against COVID‐19. Further on, it means that these territorial areas accumulate a series of structural disadvantages that can prove to increase the discrepancies between them and other rural or large urban areas. The paper contributes to enlarging the perspective on vaccination coverage by adding both conceptual and practical insights. From the point ofview of practitioners, the results of the study can be used to tailor intervention in communities with similar characteristics, to underscore public health inequalities across territories. Points for practitioners are relevant for a wide range of stakeholders from public health, public management, and social protection fields, placed in both local and central level decision‐making positions.

Spatial patterns of EU funds absorption in Romanian rural municipalities

Abstract This study analyses the spatial differences in EU funds absorption among Romanian rural municipalities through the 2014–2020 programming period. The absorption capacity for EU funds is measured by the volume of spent EU funds by inhabitant, for each Romanian rural municipality. The results of the analysis highlight the importance of the territorial dimension when studying the distribution of EU funds among the rural municipalities of Romania. Affiliation with a specific development region (NUTS 2), county (NUTS 3) or a functional urban area (FUA) is used to differentiate the volume of absorbed EU funds. In Romania, rural municipalities with higher levels of absorbed EU funding are, to a statistically higher extent, located in development regions in the Centre, North-West, South-West and West of the country; in communes with no change, or even an increase, in population between 2014 and 2021; in the highest quartile of fiscal capacity and in communes with experience with EU funding from the preceding programming period. This article adds to the growing body of territorial evidence and can be used as a policy instrument to more closely examine the intervention tools embedded in EU funding policy.

Technology adoption in autocratic economies: The role of fiscal capacity

AbstractWhat determines technology in autocratic regimes? In this paper, I assume that a rent‐extracting regime can adopt technology from the global technology frontier, tax‐paying citizens can oust the regime, and technology can decrease the ousting cost. I show that a lack of fiscal capacity can increase technology by preventing the ousting constraint from binding. Consistent with this prediction, tax collections and total factor productivity are negatively related in autocratic regimes. Extensions show that natural resources can divorce fiscal revenues from technology, which can encourage technology blocking. However, if technology adoption is socially costly, autocratic regimes can adopt too much technology.

How Personalist Parties Undermine State Capacity in Democracies

How do political parties shape state capacity? We argue that democratic leaders backed by personalist parties are more likely than other leaders to undermine impartial state administration. Personalist parties are those where the leader has more control over the party than other senior party elites. Elites in these parties have careers closely tied to the leader, are unlikely to normatively value an impersonal bureaucracy, and lack collective action capacity independent from the leader. Therefore, personalist parties are less likely than other parties to restrain leaders from undermining impartial state administration. Results from various designs for causal inference show that party personalism decreases impersonal state administration, particularly when the party controls a legislative majority. However, party personalism does not influence other dimensions of state capacity, such as fiscal capacity or territorial control. The findings have implications for how political parties enable democratically elected leaders to erode open-access societies and ultimately, democracy.

The Welfare State Scattergram

Welfare states have traditionally been studied through quantitative tools such as indices and qualitative ones such as typologies. However, there seems to be a lack of analytical tools that simultaneously show welfare state outcomes and development potential. In this paper, we developed the Welfare State Scattergram. This result of two indices gives the welfare state’s outcomes and fiscal capacity, the latter serving as a proxy for improvement potential. The indicator used for the X-axis is a modified debt-sustainability formula to indicate fiscal capacity and, thus, the development potential of the welfare state. The indicator used for the Y-axis gives the welfare state outcomes and consists of a weighted welfare state outcomes indicator.

Investment in water, sewage and waste disposal in Norwegian local governments

PurposeDescribe the trends in investments in the water, sewage and waste disposal sector (WSD) in Norwegian local governments and search for determinants that can explain variations in investment levels across local governments. The water, sewage and WSD is the second most important sector in Norwegian local governments in terms of the share of total investments and is subject to much debate due to aging pipelines in many communities. However, as pipelines are hidden in the ground, this is also a sector that can easily be forgotten until an actual failure in the system occurs.Design/methodology/approachThe authors analyze a large data set of all Norwegian local governments in the period 2003–2018 using descriptive statistics and regression techniques.FindingsThe investment levels are driven by need, in terms of expectations of a growing population, and fiscal capacity. Hence, the authors conclude that the investment decisions seem to be mostly based on reasonably rational evaluations of the local governments' future needs and capacity to pay for investments.Originality/valueThe paper contributes to the literature on determinants of public capital expenditures. An important part of this debate is whether differences in expenditure levels reflect rational decisions based on changes in need and fiscal capacity or shortsighted policy decisions.

Fiscal and political determinants of local government maintenance

ABSTRACT Taking advantage of a novel data set on maintenance in Norwegian local governments, a comparison was made between norms for good maintenance and actual maintenance spending. Although a sizeable minority complies with the norm, the average maintenance spending is well below the norm. A theoretical model is developed to guide the empirical analysis of the determinants of maintenance. It emphasizes the roles of fiscal capacity, fiscal distress, and political fragmentation. The empirical analysis reveals that high fiscal capacity (measured by local government revenue) and little fiscal distress (measured by rainy-day funds) are associated with a high priority of maintenance spending. However, political fragmentation that reflects myopic behaviour is associated with low maintenance priorities. The results are robust and become stronger when outliers and small local governments are omitted.

The Role of Property Assessment Oversight in School Finance Inequality

This paper explores an under-studied channel for school finance inequality: property assessment. School districts have historically relied on local tax revenues (typically property taxes) to fund schools, which can generate disparities in funding across districts. Many states passed school finance reforms that give more state funding to poorer districts. These formulas typically discourage school districts from offsetting state funding by reducing local tax rates (“crowd out”). However, many reforms have not adequately addressed another source of inequality: property assessment accuracy and equity. Moreover, state reform can unintentionally subsidize property underassessment. We analyze a state government intervention to address property assessment inequities within and across school districts. We use difference-in-differences and county- and school district-level administrative data to find the intervention boosted assessments by 32 percent. Assessment equity improved substantially and local property revenues temporarily increased by 17 percent. Local fiscal and institutional capacity played a role in assessment inequity pre-reform. Our results suggest that underassessment can compound funding inequality across districts in states that rely on property wealth to fund schools. Therefore, effective state oversight in property assessments is needed to ensure the integrity of funding systems that distribute state funding to districts on the basis of their assessed property wealth.

Federal fiscal capacity and the challenge of the green transition in the EU

ABSTRACT The debate on the necessity of a federal fiscal capacity in the EU has featured prominently on the EU’s agenda over the past decade. New Generation EU marks a historic breakthrough in that regard. This breakthrough has been accomplished in order to fulfil macroeconomic stabilization functions, but the bulk of the funding has been earmarked for green transition projects. This paper asks whether a federal budget has added value in relation to the green transition and provides a theoretically informed answer. It ends with a call to revise articles 311 and 312 TFEU so as to grant fiscal powers to the EU

Fiscal policy under constraints: Fiscal capacity and austerity during the Great Depression

AbstractThe Great Depression was characterized by widespread fiscal policy mistakes in the form of a contractionary or insufficiently expansionary fiscal stance. Despite this general conclusion, there were large differences in the conduct of fiscal policy between countries. I find that a higher degree of fiscal capacity helped countries run less procyclical fiscal policies by allowing them to borrow more extensively. Lower borrowing costs only partially explain this finding. Taken together, the results indicate that interwar governments were constrained in their policies by past investments in fiscal capacity, and not just by Gold Standard membership, ideology, and inadequate knowledge, as commonly held in the literature.

DETERMINAN KINERJA PENYELENGGARAAN PEMERINTAH DI INDONESIA: STUDI EMPIRIS PERANAN KEMANDIRIAN DAERAH DAN KEKAYAAN DAERAH

This study aims to analyze the influence of regional financial factors consisting of independence and regional wealth on the performance of local governments in Indonesia. This study used secondary data from authorized government institutions with a final sample of 506 local governments which were analyzed using multiple linear regression methods. The results of the analysis show that in terms of achievements, the average performance of local governments in Indonesia has been good, but there are still issues of disparities between regions that need to be corrected. 
 Meanwhile, the analysis of hypothesis testing through multiple linear regression found a positive effect of regional independence variables on local government performance. Meanwhile, the regional wealth has no significant effect on local government performance. This research has the implication that improving the quality of regional financial management is very important in the implementation of regional autonomy in Indonesia in order to support the achievement of regional performance so that it must be optimized. In this case, the regional government and the central government must synergize through various policies to improve the quality of regional financial management in order to increase independence, fiscal capacity, and optimize assets

Condominium to the Country: The Sprawl of Ownership within Private Local Government in British Columbia

As a form of land ownership, condominium enables subdivision and produces local government. Designed to facilitate the production of apartments as distinct parcels of land, ownership within condominium now dominates many urban housing markets. In some jurisdictions, including British Columbia, condominium (labelled strata property) may also be deployed to subdivide land for single-house lots within a structure of private local government. The principal effect of extending condominium to unbuilt land is not to enable subdivision, which is something that was already possible and common, but, rather, to endow groups of single-house lot owners with fiscal capacity and governing authority to assume important aspects of local government. Through an analysis of bare land strata property in British Columbia, we reveal how the condominium form, which brought an architecture of ownership and government from the homeowners association of the American suburbs to the North American city, has spread back from the city into the suburban, exurban, and rural, producing a sprawl of ownership within private local government.

Accrual Management in the Local Government Of Aceh: An Empirical Evidence

Objective –The objective of this study was to examine the factors that influence accruals manipulation in local government. There are 4 (four) factors or variables tested, namely the size of the local government, fiscal capacity, fiscal distress, and the size of the legislature.Design/Methodology –This research uses multiple linear regression analysis with the dependent variable accrual manipulation and four independent variables. The data used is secondary data obtained from financial reports.Results –The results of the analysis conclude that the variable size of local government and size of the legislature have an effect on accrual manipulation in district and city local governments in Aceh, while the other two variables, namely fiscal capacity and fiscal distress, have no effect.Research limitations/implications – This research only examines at the impact of local government size, fiscal capacity, fiscal distress, and legislator size on accrual manipulation in creating local government financial reports in Indonesia and it considers the implications for government financial reports.Novelty/Originality –The novelty in this research is to include the variable fiscal distress as one of the independent variables. Fiscal distress is a problem in fulfilling local government finances (budget), which is reflected in the budget deficit for several years in a row.

Fiscal capacity and commercial bank lending under COVID-19

We investigate the implications of government indebtedness for the efficacy of expansionary government spending in encouraging commercial bank lending growth during the COVID-19 pandemic. Our sample is a large cross-section of over 3000 banks from 71 countries. To address the likely endogeneity of government assistance, we instrument for extra-normal spending using disparities in pre-existing national political characteristics. Our results indicate that bank lending did respond to fiscal capacity, as higher public debt going into the crisis weakened the expansionary effects of higher spending on bank lending at economically and statistically significant levels. Moreover, this sensitivity was higher among weaker banks, suggesting sensitivity to the perceived implications of spending for government assistance going forward. We also found greater sensitivity in high-income economies and for small and medium-sized banks. Our results are robust to a variety of robustness tests, including perturbations in specification, sample, and estimation methodology.

Fairness and Tax Morale in Developing Countries

This paper investigates the relationship between individuals' attitudes towards fairness and their views about tax compliance in developing countries. It argues that individuals’ attitudes regarding fairness shape their views about paying taxes and their ethical stances regarding tax evasion. Using survey data for 18 major cities in Latin America, we find that individuals who are highly sensitive to fairness are less likely to consider paying taxes as a civic duty and more likely to justify tax evasion. These attitudes toward tax compliance are not inelastic. We also find evidence that individualst argues about reciprocity and merit mediate the effect of fairness on personal views about tax compliance. Finally, this paper shows that the heuristics people use to explain their position in the income distribution make them sensitive to inequality, and it affects their tax morale. These findings help us better understand the concept of reciprocity and provide valuable lessons on the urgent task of expanding fiscal capacity to promote economic growth and inequality in developing countries.

When Do Elites Support Increasing Taxation? Evidence from the American South

When do elites support the expansion of the state’s ability to tax? Despite the disproportionate influence that elites are theorized to exert on politics, answers to this question remain elusive. We argue that elites will support increased taxation, including on themselves, when they believe greater fiscal capacity will yield collective goods that further their interests, they have political control, and they expect this control to persist into the future. We test our argument by measuring changes in state taxation using an annual panel of Southern slave states between 1840 and 1860. Our strategy exploits both institutional differences across these states in the de jure political control of the slave-owning elite and rising international demand for Southern cash crops. We find that states with greater slave owner control responded to increased demand for their crops by raising taxes on slaves and land, their primary assets, to fund railroad construction.

Myopic fiscal objectives and long-Run monetary efficiency

Is the pursuit of myopic fiscal objectives, such as short-run redistribution or public spending, a threat to long-run monetary efficiency? We answer this question in the context of a textbook overlapping generations model where we introduce a sequence of one-period fiscal authorities that can tax endowments and trade money. Each authority is myopic in that it cares only about current agents’ utility and its own consumption, without any concern about the future. Nonetheless, we show that the sequence of fiscally-backed money purchases that maximize the current authority’s objective also selects a unique equilibrium – one in which money is traded at the efficient intertemporal price – as a by-product. In fact, myopic redistribution policies ensure equality in marginal utilities making up for incomplete markets, without interfering with the efficiency of private intertemporal choices. Multiplicity and sub-optimality emerge as fiscal capacity is bounded, inducing authorities to use money trades to generate resources for public consumption.

Carbon emissions regulations and FDI inflow: moderating effects of bank credit availability and fiscal capacity for China's prefecture-level cities

Carbon emissions regulations and FDI inflow: moderating effects of bank credit availability and fiscal capacity for China's prefecture-level cities

The economic impacts of COVID-19 and city lockdown: Early evidence from China

As the first major developing country heavily struck by the COVID-19 pandemic, China adopted the world's most stringent lockdown interventions to contain the virus spread. Using macro- and micro-level data, this paper shows that both the pandemic and lockdown policies have had negative and significant impacts on the economy. Gross regional product (GRP) fell by 9.5 and 0.3 percentage points in cities with and without lockdown interventions, respectively. These impacts represent a dramatic recession from China's average growth of 6.74% before the pandemic. The results indicate that lockdown explains 2.8 percentage points of the GDP loss. We also document significant spill-over effects of the pandemic in adjacent areas but no such effects of lockdown. Reduced labor mobility, land supply, and entrepreneurship are among the most significant mechanisms underpinning the impacts of the pandemic and lockdown. Cities with higher share of secondary industry, higher traffic intensity, lower population density, lower internet access, and lower fiscal capacity suffered more. However, these cities seem to have recovered well from the recession and quickly closed the economic gap in the aftermath of the pandemic and city lockdown. Our findings have broader implications for the global interventions in pandemic containment.

Colonial companies and the cost of introducing Indian immigrants into Fiji, 1884–1916

AbstractUsing Fiji as a case study, I conduct the first cost accounting of government‐run Indian indentureship in the nineteenth and twentieth centuries. I analyse multiple official data sources and estimate the total cost of bringing Indians to Fiji was £926,851, roughly a fifth of Fiji's reported expenditure. Businesses funded 92.6% of this cost. However, business payments to the government do not appear in official Blue Books. Incorporating business payments shows that both official revenue and expenditure were underestimated by 15%. My results show how one part of colonialism was funded and how colonial fiscal capacity may be underestimated more broadly.