Local Financial Conditions Research Articles

How Direct Citizen Participation Affects the Local Government Financial Condition: A Case of Participatory Budgeting in South Korea

In theory, direct citizen engagement in budgeting helps local governments reflect the citizens’ budget preferences more precisely, thereby enhancing citizen-government communication. However, the efficacies of budget participation remain ambiguous considering both its democratic values and the cost of deliberation. In this study, we test how direct citizen participation by means of participatory budgeting (PB) affects the financial condition of local governments. We use a sophisticated concept of financial condition that encompasses various abilities of local government. We measure the degree of citizen participation as the availability of institutional mechanisms associated with different levels of inclusiveness and authorities determined by South Korean local government ordinances of formal budget participation. Our empirical analysis based on South Korean local governments’ data between 2012 and 2019 reveals that a PB institution with higher participation level further worsens the local financial condition. The adverse effects are mostly identified in the mid-term and long-term financial conditions, whereas the short-term financial condition remains unaffected. The findings imply that direct participation in theory corrects mismatches between bureaucratic and citizen priorities, but, in practice, the citizens may inappropriately direct mid- and long-term oriented public investment and debt management.

Analysis of Regional Financial Conditions in Local Governments of Enrekang Regency, South Sulawesi Province, Indonesia

Purpose: The aim of this study was to examine the local financial condition of Enrekang Regency for the 2015-2019 fiscal year as an overview of the ability and success of local governments in managing their own local finances. Theoretical framework: The Regional financial condition is the ability of a local government to fulfill its obligations to anticipate unexpected events, as well as to execute their financial rights effectively and efficiently (Ritonga, 2014). The measurements carried out in this study are based on the dimensions of condition measurement proposed by Ritonga 2014, namely short-term solvency, budget solvency, long-term solvency, financial flexibility, financial independence, and service level solvency. Design/methodology/approach: The method used in this research is the descriptive method with a quantitative approach. The data used is secondary data sourced from the Local Government Financial Report Examination Results of Enrekang Regency for the 2015-2019 fiscal year, obtained from the Information and Documentation Management Officer. Findings: The results of this satudy are the financial management in Enrekang Regency is quite good so as to produce a fairly good financial condition as well. Enrekang Regency has a good financial condition in terms of short-term dimensions, budget solvency, financial flexibility and service level solvency. Meanwhile, the regional financial condition of Enrekang Regency is still not good in terms of regional financial independence due to the low local revenue. The regional government still relies heavily on funding sources from outside or relies on transfer funds from the central government. Research, Practical & Social implications: The results of this study are useful as a source of information in making decisions for the local government of Enrekang district and related parties, especially in making policies related to governance, especially in effective, efficient and economical financial management. Originality/value: The value of this research is very useful for the local government as a guide in assessing the condition of government financial health.

Municipal Fragmentation and Local Financial Condition

A sizeable literature investigates how intergovernmental competition affects various fiscal outcomes in a fragmented local landscape. However, it remains untested how the fragmentation affects the outcomes simultaneously. This study addresses the issue by condensing individual outcomes into a multifaceted concept of financial condition. Utilizing a pooled cross-sectional time-series approach on the metropolitan statistical areas in the U.S between 1972 and 2017, this study tests how financial condition of municipalities varies by competition among them. The finding exhibit adverse effects on their financial condition when a greater number of municipalities is identified.

The geography of financial condition in the Mexico City metropolitan area

There has been academic and policy concern about the financial capacity of administratively fragmented metropolitan areas to implement inclusive development measures and provide public services. Metropolitan public financing is problematic because there is a geographical mismatch between extended functional urban regions and administrative units. While local governments are responsible for implementing policies, spending, and raising revenues, financial capacity tends to differ across jurisdictions in response to economic, social and political factors, resulting in manifold disparities. Such variations can be particularly acute depending on the complexity and size of the metropolitan area, and can lead to major spatial disparities in the life standards of residents. This paper focuses on the local financial condition in Mexico City Metropolitan Area, which is often used to exemplify a fragmented metropolitan area. Official statistics from 1989 to 2018 are used to identify major intra-metropolitan variations in the financial condition of local governments. A novel methodology is used to classify municipalities according to their financial health, and discriminant analysis is used to explore the factors shaping the geography of financial performance. The economic and demographic size of municipalities appear to play a significant role.

Does Contracting out Matter to Financial Condition? The Case of New York Local Governments

Little scholarly research has paid attention to the collective impact of contracting out on local financial condition. Contracting out can enhance a fiscal state by allowing local officials for more buying power with lower service costs as well as less long-term liabilities. Beyond prior research on the effect of contracting in a service, this research offers evidence that higher levels of contracting out spending improve local financial condition regarding budget solvency and long-run solvency. However, external suppliers can deteriorate financial condition. The findings show that the improvement of budget solvency does not materialize at a certain level of contracting out spending, but this is not the case for long-run solvency. The expectation of financial condition improvement may rely on the degree to which practitioners deliver public services through contracting out. Thus, local officials may want to decide levels of contracting out services strategically.

Financial stress in lender countries and capital outflows from emerging market economies

We investigate if financial stress in countries where international banks are headquartered is a major driver of the withdrawal of these banks’ credit to emerging market economies (EMEs). We find that when financial stress, measured by sovereign or bank CDS spreads or corporate bond spreads, increases, international banks decrease their lending to EMEs, which acts as a major driver of capital outflows from EMEs. In particular, financial stress in lender countries is a more important driver than the local financial conditions and macroeconomic fundamentals of EMEs. Such results hold for both the countries that experienced crises and those that did not, during the Global Financial Crisis (GFC). Such results also generally hold even after the GFC period, but to a lesser extent. Our findings suggest that it is desirable for EME policymakers to promote diversification of lender countries.

The failure of Chinese peer-to-peer lending platforms: Finance and politics

We investigate the influence of financial and political factors on peer-to-peer (P2P) platform failures in China's online lending market. Using a competing risk model for platform survival, we show that large platforms, platforms with listed firms as large shareholders, and platforms with better information disclosure were less likely to go bankrupt or run off (platform owners abscond with investor funds). More importantly, failing platforms were much less likely to run off in advance of major political events, but more likely to declare bankruptcy or run off after such events. These effects are more pronounced for politically connected platforms, platforms operating in provinces where local officials have close ties with central government, and in provinces with better local financial conditions. Our study highlights the role of political incentives on government regulatory intervention in platform failures.

The Failures of Peer-to-Peer Lending Platform Finance and Politics

We investigate the influence of financial and political factors on Peer-to-Peer (P2P) platform failures in the online lending market in China. Using a competing risk model for platform survival, we show that large platforms, platforms having listed firms as large shareholders and platforms with better information disclosure are less likely to go bankruptcy or run off with investors’ funds. More importantly, falling platforms are much less likely to run off in advance of important political events, but more likely to go bankruptcy or run off after these events. These effects are more pronounced, among platforms that are more politically connected, and platforms operating in provinces where local officials have close central-local political ties, and when there is a better local financial condition. Our study highlights the role of political incentives on government regulatory intervention of platform failures.

Geographical Potential of Solar Thermochemical Jet Fuel Production

The solar thermochemical fuel pathway offers the possibility to defossilize the transportation sector by producing renewable fuels that emit significantly less greenhouse gases than conventional fuels over the whole life cycle. Especially for the aviation sector, the availability of renewable liquid hydrocarbon fuels enables climate impact goals to be reached. In this paper, both the geographical potential and life-cycle fuel production costs are analyzed. The assessment of the geographical potential of solar thermochemical fuels excludes areas based on sustainability criteria such as competing land use, protected areas, slope, or shifting sands. On the remaining suitable areas, the production potential surpasses the current global jet fuel demand by a factor of more than fifty, enabling all but one country to cover its own demand. In many cases, a single country can even supply the world demand for jet fuel. A dedicated economic model expresses the life-cycle fuel production costs as a function of the location, taking into account local financial conditions by estimating the national costs of capital. It is found that the lowest production costs are to be expected in Israel, Chile, Spain, and the USA, through a combination of high solar irradiation and low-level capital costs. The thermochemical energy conversion efficiency also has a strong influence on the costs, scaling the size of the solar concentrator. Increasing the efficiency from 15% to 25%, the production costs are reduced by about 20%. In the baseline case, the global jet fuel demand could be covered at costs between 1.58 and 1.83 €/L with production locations in South America, the United States, and the Mediterranean region. The flat progression of the cost-supply curves indicates that production costs remain relatively constant even at very high production volumes.

The Failure of Chinese Peer-to-Peer Lending Platforms: Finance and Politics

We investigate the influence of financial and political factors on peer-to-peer (P2P) platform failures in China’s online lending market. Using a competing risk model for platform survival, we show that large platforms, platforms with listed firms as large shareholders, and platforms with better information disclosure were less likely to go bankrupt or run off (platform owners abscond with investor funds). More importantly, failing platforms were much less likely to run off in advance of major political events, but more likely to declare bankruptcy or run off after such events. These effects are more pronounced for politically connected platforms, platforms operating in provinces where local officials have close ties with central government, and in provinces with better local financial conditions. Our study highlights the role of political incentives on government regulatory intervention in platform failures.

SMEs and access to bank credit: Evidence on the regional propagation of the financial crisis in the UK

We study the sensitivity of banks’ credit supply to small and medium size enterprises (SMEs) in the UK with respect to the banks’ financial condition before and during the financial crisis. Employing unique data on the geographical location of all bank branches in the UK, we connect firms’ access to bank credit to the financial condition (i.e., bank health and the use of core deposits) of all bank branches in the vicinity of the firm for the period 2004–2011. Before the crisis, banks’ local financial conditions did not influence credit availability irrespective of the functional distance (i.e., the distance between bank branch and bank headquarters). However, during the crisis, we find that SMEs with banks within their vicinity that have stronger financial conditions faced greater credit availability when the functional distance is close. Our results point to a “flight to headquarters” effect during the financial crisis.

Policies for financing entrepreneurship through venture capital: learning from the successes of Israel and Taiwan

The success of Silicon Valley as a hub for rapid-innovation growth has motivated policy-makers around the world to initiate policies trying to mimic it. These policy initiatives raise the question of whether globalisation should encourage innovation policy-makers to aim for institutional convergence and close imitation, or for institutional hybridisation and local experimentation. This paper explores this question by focusing on venture capital creation policy. Using two national cases, Israel and Taiwan, we show that policy effectiveness is not the result of simple imitation. Instead, policy performance is determined by degree of fit with local financial conditions and the position of the local ICT industry within global production networks. We then consider the implications of our study for understanding the development of national VC industries and the industries they fund. The primary message being that there is no singular model for venture capital market development. Instead, policy-makers need to understand the local context with its assets and liabilities. Of particular importance are local financing conditions, firm capabilities, and the existing position of local firms within the global production networks of the ICT industry.

SMEs and Access to Bank Credit: Evidence on the Regional Propagation of the Financial Crisis in the UK

We study the sensitivity of banks’ credit supply to small and medium size enterprises (SMEs) in the UK to banks’ financial condition before and during the financial crisis. Employing unique data on the geographical location of all bank branches in the UK, we connect firms’ access to bank credit to the financial condition (i.e., bank health and the use of core deposits) of all bank branches in the vicinity of the firm over the period 2004-2011. Before the crisis, banks’ local financial conditions did not influence credit availability irrespective of the functional distance (i.e., the distance between bank branch and bank headquarters). However, during the crisis, we find that SMEs with in their vicinity banks that have stronger financial condition face greater credit availability when the functional distance is low. Our results point to a “flight to headquarters” effect during the financial crisis.

Effect of the Political System on Local Financial Condition: Empirical Evidence for Spain's Largest Municipalities

The significant relationship between public spending and political system has led to a considerable increase in the studies being carried out to analyze how the latter affects public spending, debt, and fiscal pressures. Given the effect that municipal finance has on the quantity and quality of the public services that future generations will enjoy, the aim of this study is to analyze the effect that political ideology and strength have on local government management overall through analysis of the financial condition. With this goal in mind, the study applied panel data methods that allow unobservable heterogeneity to be controlled to a sample of 153 of Spain's largest municipalities for the 1988–2008 period. The results show that the municipalities governed by progressive political parties are worse off financially than those governed by conservatives. Likewise, strong citizen support guarantees greater budgetary solvency.

Panel Data Analysis to Identify Covariates of Longevity and Patronage of Community Shuttles in New Jersey

Shuttle services connecting passengers’ origins and destinations to transit stations and terminals can play a crucial role in enhancing system ridership. Partially because of federal funding through the Congestion Mitigation and Air Quality Improvement Program, such services have become popular in parts of the country. However, studies on the success of community shuttles have been rare. Almost all past studies were stated-preference studies, or case studies without statistical analysis of actual performance of shuttle services. To provide researchers and practitioners with crucial information on the factors potentially influencing the success of shuttle services, this study examined the longevity, level of service, and passenger volumes of the shuttle services introduced in New Jersey between 2002 and 2004. By using panel data analysis, the authors examined how local financial condition, station lot parking, parking cost, bus connections, and socioeconomic and land use characteristics of service areas influence the performance of shuttle services. The study used different types of data, including quarterly panel data on 31 shuttle services for a 7-year period, data from stated-preference surveys of six New Jersey Transit commuter rail lines, and municipal finance data. Results indicated that local financial condition was important for the longevity and level of service of shuttles. Evidence was also found that ease of access to station by alternative modes–whether by walking, local buses, or driving–reduced the attractiveness of shuttle services. Results of the study showed that the success of shuttle services may depend on factors far beyond stated preferences of potential users.

Dilemmas of Local Governance under the Development Zone Fever in China: A Case Study of the Suzhou Region

This article aims to explore the mechanisms of the development zone fever in the Suzhou region, located in the fast-growing Yangtze River Delta, and investigates, from an institutional perspective, the practice of relevant intragovernmental governance in the context of rapid industrialisation since the 1990s. A specific mode of governance—the evaluative economic indicators scheme inherited from the earlier socialist planning system, combined with the party/state's promotion/evaluation system—plays an essential role in this transformation of farmland property rights. However, this model of development is not necessarily helpful for local financial conditions and it results in the disclacement of peasants and the loss of land resources. Based on the resulting `dilemmas of governance', it is argued that, in addition to the `economic paradigm', which focuses on consequences of fiscal reforms and devolution, scholars should pay more attention to factors such as the party/state's promotion/evaluation system and the stress between the evaluative indicators system maintained by the central/local sectoral command and the territorial jurisdictions. This could be helpful in gaining a fuller understanding of the dynamics and tensions of local developments in China.

Someone to Watch Over me

Although the fiscal condition of local governments has been a recent concern for some states, there is considerable ambiguity about what constitutes fiscal difficulties and how to recognize them before they become fiscal emergencies. This article outlines the results of a 50-state survey to identify and classify indicators states use to assess or monitor fiscal conditions in their local governments. The survey revealed that most states did not have such indicators in place, and those that do rarely agree on which indicators to construct. Only 15 states have in place indicators to assess or monitor local financial conditions, and many of these states use indicators that do not identify local problems before they become major. Most indicators used by states are based on operating position variables such as fund balances and are predicated on the assumption that local financial emergencies are management problems rather than the result of longer term trends.