Intergovernmental Aid Research Articles

The impact of intergovernmental fiscal tools on local service decision: the Nebraska case for water and wastewater systems

ABSTRACT This study examines the impact of federal funding on local spending for water and wastewater infrastructure (hereafter ‘W&WI’) in Nebraska. The recent deterioration of W&WI creates potential risks to citizens’ lives. The federal government operates several programmes to assist with W&WI improvements. However, funding is limited, while there are substantial demands for funding. To understand the fiscal impact of intergovernmental aid on local expenditures, this study utilised panel data from 2010 to 2018 for 129 Nebraska municipalities with population over 800 that have water and wastewater systems. This study finds some evidence of the stimulating (‘flypaper’) effect of federal aid on local expenditures. However, in disaggregated models, the aid has crowd-out effects on specific types of spending (e.g. operating expenses). The findings can contribute to policymakers’ understanding of the impact of federal funding programmes and suggest directions for improvement of these tools.

The great recession and the public sector in rural America

Abstract Why did rural areas recover from the great recession much more slowly than metropolitan areas? Due to declining tax revenues and intergovernmental aid, employment in the American local government sector fell substantially after the great recession. Cuts to local public employment were especially large, long-lasting and consequential in rural areas, which have become relatively dependent on public-sector employment and intergovernmental transfers. The public sector is relatively inconsequential in urban America, but in many rural places, a decade after the great recession, the public sector was the slowest category of employment to recover and the leading source of long-term job losses.

China- A strategic Economic Player in Africa

Africa possesses substantial economic potential, boasting significant reserves of global oil (12%) and mineral wealth (over 30%). However, it grapples with various impediments for development encompassing deficient education, healthcare, infrastructure, and governance. The traditional approach of relying on the World Bank or the International Monetary Fund (IMF) has been hindered by complicated political dynamics and high levels of corruption. This has led to African countries increasingly seeking financial and investment support from China, especially through BRI and FOCAC initiatives. This paper advocates for a nuanced strategy, where African nations synergistically blend intergovernmental aid and Chinese investments to catalyze sustainable growth and facilitate human development. China's particular proficiency in infrastructure development aptly aligns with Africa's imperative requirements, which encompass job creation and the diversification of economic prospects. However, it is vital to exercise discernment and acknowledge that while China's investments have played a pivotal role in Africa's development trajectory, they are not a universal panacea. The bedrock of sustainable development rests upon the pillars of education, infrastructure, and proficient governance. To encapsulate, the symbiotic partnership between Africa and China harbors substantial potential. Nevertheless, this partnership should be a constituent element of a comprehensive strategy that underscores the primacy of sustainable development, economic expansion, and responsible governance. Effective collaboration between African governments and international counterparts assumes paramount importance in unlocking Africa's latent prowess on the global stage. Through a proactive embrace of their developmental strategy, African nations can pave the way for a brighter future and emerge as pivotal global actors.

Fiscal Impacts of the Opioid Crisis on State and Local Governments

Adverse effects of the opioid crisis on individuals influence the need for state and local government expenditures and erode their tax bases. Systematic estimates of the magnitude of such fiscal impacts are lacking. We estimate the magnitude of the effect of the opioid crisis on state and local expenditures and discuss approaches that might be taken to evaluate the impact of the crisis on revenues. We find that the fiscal impacts of the opioid crisis on state and local governments are modest for the U.S. as a whole but are likely to be greater in states with particularly high rates of opioid-use disorders. Our analysis aims to encourage and guide more in-depth studies in the future. Such studies can inform intergovernmental aid policies designed to offset the fiscal impacts of opioid misuse and can also contribute to assessing damages in opioid lawsuits.

Exploring the Sub-state Intergovernmental Game

AbstractThis paper presents a model of fiscal federalism where state and local officials jointly fund a local public good that produces regional externalities. The model examines the implications of diverging budgetary priorities at the state and local level for the sustainability of cooperative funding arrangements. Local government dependence on intergovernmental aid is shown to negatively affect the likelihood of receiving state bailouts. Additionally, the termination of joint funding agreements is predicted to precede increased government fragmentation through the formation of new special purpose districts. The analysis is illustrated using flood control infrastructure finance and school district fragmentation.

Haiti: An Ethnographic Study of the Effects of International Aid on Haitian Life

Haiti has seen an increasing number of non-governmental organisations (NGO) and intergovernmental organisations (IGO), providing structural and emergency aid in times of conflict and weather-related events. This was intensified in 2010 when Haiti regained international attention from a ravaging earthquake that shook its core. This ethnographic study analyses the effects of NGOs and IGOs a decade after this natural disaster. We attempt to venture beyond the statistical evidence grounding most analyses provided by NGOs and IGOs to reveal perspectives from individual Haitians that are impacted by the policies and decisions of these organisations. In doing so, we examine the local standard of living, infrastructure, and social dynamics through four in-person interviews conducted in their respective geographic locations. These interviews set a basis for a discussion and examination of organisations’ allocation, dependency, and sustainability. The voices of local Haitians reveal the profound, yet subtle impacts that go unreported by foreign scholars that are crucial to understanding the day-to-day challenges faced despite foreign aid. We conclude that Haitians face a stasis of social mobility despite the copious work done by aid organisations that is often inconsistent and misaligned with the needs of Haitians.

Summaries of Articles

Summaries of Articles

Incentives and Austerity: How Did the Great Recession Affect Municipal Economic Development Policy?

In addition to cuts in social programs, the Great Recession also affected government expenditures once considered less vulnerable to austerity, such as economic development. Using a comparative case study approach, we examine economic development policies and practices in two cities, sampled for similar economic and fiscal conditions: Fresno, California and Milwaukee, Wisconsin. We find that declining state support and local autonomy weakened the municipal economic development function while leaving entrepreneurial logics largely intact. In the face of significant economic and fiscal stress after the Great Recession, both Fresno and Milwaukee remained committed to conventional approaches to stimulating private development, even as their capacity to do so was severely constrained by state pre-emption and cuts in intergovernmental aid. The elimination of city-controlled economic development programs, rescaling of incentives, and state-imposed regulatory restrictions provide a counter-narrative to those claiming that a “new localism” enhanced the role of cities as economic actors after the crisis.

School Finance Reforms, Teachers' Unions, and the Allocation of School Resources

School finance reforms caused some of the most dramatic increases in intergovernmental aid from states to local governments in U.S. history. We examine whether teachers' unions affected the fraction of reform-induced state aid that passed through to local spending and the allocation of these funds. Districts with strong teachers' unions increased spending nearly dollar-for-dollar with state aid and spent the funds primarily on teacher compensation. Districts with weak unions used aid primarily for property tax relief and spent remaining funds on hiring new teachers. The greater expenditure increases in strong union districts led to larger increases in student achievement.

An Exploration of Revenue Structure Characteristics in Rural Municipalities

This article tests for differences in revenue structure between small rural and nonrural municipalities. Colorado serves as a case study owing to its large number of small municipalities. Empirical analyses indicate that rural municipalities are less likely to adopt a local option sales tax, receive a smaller share of their total revenue from intergovernmental aid, and have less diversified tax systems compared to similarly sized nonrural municipalities. The article also shows these conclusions are sensitive to how one defines ruralness, indicating that what scholars know about public finance in rural communities is sensitive to the definition as well.

Could ‘Belt and Road’ be the Last Step in China’s Asian Economic Integration?

ABSTRACTThis article assesses the role of China’s ‘Belt and Road’ initiative (BRI) in the country’s intended global economic integration. Particular attention is paid to China’s capital penetration of Asian markets, with an empirical assessment of the structure of Asian markets from the perspective of foreign trade, foreign direct investment (FDI) and intergovernmental aid. The success of China’s new opening-up initiative will be largely contingent on Asian markets’ recognition of Chinese products and capital: its trade with potential cooperative countries and its FDI and intergovernmental aid to them fall behind those of the developed countries that are China’s major cooperative partners in/outside Asia. China’s ongoing Asian economic strategy thus faces competition and will need to integrate the BRI into the current framework of international economic cooperation.

The Effects of Tax and Expenditure Limitations (Tels) on Municipal Fiscal Outcomes during A Period of Fiscal Distress

We propose to expand the theoretical understanding of cutback strategies by investigating the effects of institutional constraints on fiscal outcomes during a period of severe fiscal distress. To test our research hypothesis, this study focuses on a cross-section of municipalities throughout the U.S. during and shortly after the 2008–09 recession. Using multiple data sources from the Government Finance Officers Association (GFOA) and American Community Survey (ACS), we employ a panel data from 2008 to 2011 which covers the period of the Great Recession to best capture cutback strategies during a period of severe fiscal distress. We observed differences in fiscal outcomes based on the severity of the municipal TELs. Municipalities constrained by more stringent TELs received more intergovernmental aid, incurred higher debt service expenditures and experienced less net capital investment during the most recent recessionary period. These findings support the argument that TELs, which are often neglected in discussions of cutback strategies, should be given greater consideration. This study helps shed light on the theoretical and empirical investigations of cutback strategies by offering the concept of institutional constraints and its impact on cutback strategies.

Comparing Governance and Local Engagement in the St. Marys River Area of Concern

ABSTRACTUnder the 1987 revisions to the Great Lakes Water Quality Agreement between Canada and the United States, Areas of Concern (AOC) were designated around the Great Lakes to target the remediation of environmental impairments. Local governments have the potential to play an important role in Great Lakes restoration and protection efforts in AOCs, though the scope of their engagement in remediation efforts is not fully understood. This case study investigates the St. Marys River AOC, which spans the border between Canada and the United States. Through the theoretical lens of the ecology of games, the case study explores the strategic choices of local governments to engage in environmental policy networks in Canada and the United States. The case illustrates the importance of intergovernmental aid and collaborative institutions for ongoing environmental remediation efforts and cross-border coordination.

The determinants of budget revenues of Russian regions

This paper discusses the determinants of regional budget revenues and evaluates their impact on the level of budget provision of Russian regions. We used the panel data on 80 Russian regions in 2006-2014 embracing average population, GRP disaggregated by main economic activities, tax revenues both collected and allocated at the regional level, intergovernmental aid and total budget revenues of consolidated budgets. We applied the least-squares methods with fixed and random effects to estimate the regressions between the structure of employment in main economic activities and the collected tax revenues in Russian regions. The constructed model allowed us to distinguish activities with positive and negative influence of employment on the general tax level and to determine the elasticity of the collected tax revenue per capita with respect to the shares of employees engaged in various economic activities. Further we applied the weighted least-squares method to estimate the model, demonstrating dependency of the budget revenue per capita in Russian regions on the collected tax revenue per capita, the level of tax absorption and the share of intergovernmental transfers in consolidated regional budgets. The constructed model demonstrated high elasticity of budget provision of Russian regions with respect to the general tax level, and even more with respect to the level of tax absorption. Nevertheless, the inter-budgetary transfers showed a very slight positive impact on the dispersion of the regional budget revenue per capita over the given period. Our findings are applicable to the management of budget revenues at the regional level and to the improvement of the Russian model of fiscal federalism.

The role of intergovernmental aid in defining fiscal sustainability at the sub-national level

The concept of fiscal sustainability has become increasingly used over the last 20 years. However, much of the literature on fiscal sustainability at the sub-national level ignores the role of intergovernmental fiscal relations. To address this gap, this paper discusses a sufficient condition for sub-national fiscal sustainability and examines the importance of intergovernmental aid in determining that sustainability. Using panel data of counties and municipalities in the US, and using unit root and cointegration analytic techniques, this paper finds different levels of fiscal sustainability between counties and municipalities. We also find that intergovernmental aid plays an important role for fiscal sustainability for both counties and municipalities.

The Economic Implications of House Price Capitalization: A Synthesis

In this article, I synthesize an emerging literature that explores the conditions under which public and private investments and intergovernmental transfers are capitalized into local house prices and the broader economic implications of such capitalization. The main insights are: (1) house price capitalization is more pronounced in locations with strict regulatory and geographical supply constraints; (2) capitalization can induce the provision of durable local public goods and club goods; and (3) capitalization effects—which are habitually ignored by policy‐makers—have important adverse consequences for a wide range of policies such as intergovernmental aid and the mortgage interest deduction.

A More Equitable Approach to Cutting Intergovernmental Aid

In response to the recent fiscal crisis, state governments in the United States have deeply cut aid, often by the same percentage across communities. This across-the-board approach ignores local fiscal disparities and places a larger burden on communities in worse underlying fiscal health. This article introduces a more equitable approach to distributing aid cuts based on both underlying local fiscal health and the existing aid distribution. Policy simulations using Massachusetts data show that this approach could be politically feasible, as a majority of communities and state population would receive smaller aid cuts under this gap-based approach than under across-the-board cuts.

Does regionalization of local public health services influence public spending levels and allocative efficiency?

This paper uses a panel data set of Connecticut communities to offer several empirical insights into the economics of local public health services. First, the demand characteristics associated with local public health services are explored. Tax-share, income, and aid elasticities of local public health demand and the congestability of local public health services are estimated and compared to similar estimates for local public education and municipal services. Second, local and regional demands for public health services are compared with respect to their underlying characteristics and spending levels. Third, Brueckner's test is conducted to determine if resources are efficiently allocated to local public health services in communities with an independent health department and those participating in a regional health district. Empirical evidence reveals that the demand for local public health services is inelastic with respect to tax share, unrelated to income, and relatively sensitive to intergovernmental aid. Moreover, regionalization appears to increase spending on public health services especially relative to both municipal and local education services. Finally, regional health departments serving large populations appear to overspend on local public health services.

The Economic Implications of House Price Capitalization: A Survey of an Emerging Literature

House price capitalization – the adjustment of house prices to changes in local public service and tax levels – has long been thought to be a means of testing for efficiency in the local public sector. In this article I argue that the extent of house price capitalization itself may have important economic implications. In doing so I synthesize an emerging literature that explores the conditions under which public and private investments and intergovernmental transfers are capitalized into local house prices and the broader implications of such capitalization. The main insights are: (i) House price capitalization is more pronounced in locations with strict regulatory and/or geographical/physical supply constraints; (ii) capitalization can – under certain conditions – induce the provision of durable local public goods and club goods; and (iii) capitalization effects – which are habitually ignored by policy makers – have important adverse consequences for a wide range of policies such as intergovernmental aid or the mortgage interest deduction

Cooperation and Integration: Recommendations for Transatlantic Energy Security

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