Local Fiscal Crisis Research Articles

The “China Model”— Merits and Demerits, A Review of the Last 20 Years of the Chinese Economy

The “China Model,” which combines Chinese Communist Party (CCP) dictatorship with the use of a market economy, has been a long-term growth driver of the Chinese economy, but its content has undergone a transformation in terms of both governance and economic policy. In the early 2000s, competition among local leaders who were given sizeable discretionary authority led to dramatic regional growth but also produced various side effects. In the 2010s, however, a transformation to investment competition through debt occurred in local governments, resulting later in a real estate bubble and local fiscal crisis. The adverse effects of the Xi Jinping regime’s concentration of power have created balance sheet deterioration caused by years of excessive debt and overinvestment. The Chinese economy is now being forced to liquidate its deteriorated balance sheets, which have been weakened by years of excessive debt and overinvestment. The ineffective investments and the interest payments resulting from “implicit guarantee” by the governments have become a heavy burden on the economy, further distorting the distribution of wealth and leading to a slump in consumption. To break the current deadlock, major reform is needed, including the write-off of non-performing assets, which would bring about deflationary pressure, and the reduction of the role of state-owned enterprises, a change so significant that it would reshape the “form of the nation.” However, this would inevitably clash with President Xi Jinping’s pledge for “the great rejuvenation of the Chinese nation,” a promise made to secure his extended tenure. Given that an extraordinary concentration of power is centered on President Xi and the Chinese autocratic system lacks a mechanism for regime change, achieving such reforms will be very difficult.

Public land, value capture, and the rise of speculative urban governance in post-crisis London

The capture of value from public land has emerged as a central concern in recent scholarship on urban financialization. Drawing on the case of local authority housing companies in London, this paper explores why and how the local state is engaging in an increasingly speculative mode of land development, and with what effects. By conceptualizing state-led value capture as a political technology of risk management that operates across scales, I develop two key arguments. First, I argue that struggles over the allocation of the risks and costs of public debt have shaped local authorities’ speculative engagement with land. Unlike the case of US municipalities that are structurally reliant on private bond markets, I show how local authorities’ growth politics have been underwritten by the central state and accelerated by budgetary austerity. Second, I argue that this translocation of risk at the scale of the local gives rise to a form of state power organized around the allocation, production, and constant monitoring of financial and political risks. The politics of risk that underpin municipal experiments in state-led value capture combine an embrace of uncertainty and value expansion, with the principles of austerity budgeting, downscaling, and retrenchment. Ultimately, the effects of this form of state intervention are a heightening of uneven development, an exacerbation of local fiscal crisis, and a weakening of democratic governance.

Bad government performance and citizens’ perceptions: A quasi-experimental study of local fiscal crisis

The link between actual government performance and citizens’ performance perceptions has been controversial. Given the prevalence of negativity bias, however, the link between bad performance and citizens’ perceptions could appear to be strong. To explore this theoretically unconfirmed link, this study uses a quasi-experiment that contrasts a Japanese town in fiscal crisis, involving tax increases and service cuts, with a control village not in fiscal crisis. Using a difference-in-differences analysis with a careful retrospective pretest, it finds negative effects of the fiscal crisis on citizens’ process perception, while it shows no effects on citizens’ service satisfaction and trust in the mayor, council, and administrators. The study further finds positive associations between citizens’ performance perceptions and civic engagement. It discusses these findings to identify the boundary conditions in which a bad performance–negative perception link is likely to appear. Points for practitioners Psychology literature on negativity bias suggests that the causal links and mechanisms between bad performance and negative perceptions are stronger than those between good performance and positive perceptions. Not only citizens, but also politicians and administrators, hold negativity bias. Their blame-avoidance strategies could alleviate the growth of citizens’ negative perceptions with bad performance. Participatory governance might moderate the bad performance–negative perception link by placing citizens in a performance-improvement process and promoting their interaction with government officials.

Hands On! Part I: The Trilemma Facing the Federal Government During State and Local Budget Crises

The economic crisis that accompanied the COVID-19 pandemic has left state and local budgets in tatters, with revenue falling quickly while demands for public services increase. The federal government responded in a number of ways, but the public debate over what it should do if there is an acute fiscal crisis – a state or a large city on the edge of default – has been theoretically confused and ahistorical. This is no accident. The academic literature on state fiscal crises, while very impressive in many ways, is also somewhat confused. It focuses on two contrasting problems: the moral hazard that a federal bailout of an insolvent state government would create and the macroeconomic harm that a failure to bailout an insolvent state government would create. What these two branches of the literature agree on is that the federal government, for good or ill, has since the 1840s taken a “hands off” approach to acute state and local fiscal crises. This Article and a companion piece will show that federal government simply does not have a history of “hands off” approaches to state and local defaults. While bailouts have been rare, officials from all three branches of the federal governments have intervened repeatedly in state and local fiscal crises to aid creditors and preserve confidence in the municipal bond market. These interventions are part of a long-running federal policy of encouraging states and local governments to borrow money to build civic infrastructure. Concern for the municipal bond market has led the federal government into all sorts of otherwise hard-to-explain policies, from President Ulysses Grant threatening to send troops to Iowa in 1870 to make a small town pay its debts to the Supreme Court’s radical transformation of the doctrine of Swift v. Tyson. Federal policy has been inconsistent, toggling between policies aimed at different and incommensurable goals, even during a fiscal crisis, perhaps most famously when it offered loans to New York City after the famous “Ford to City: Drop Dead” headline suggested aid would not be forthcoming. Recognizing their real concern for the municipal bond market changes our understanding of what is at stake for federal policymakers when they respond to acute state and local budget crises. Federal officials face a “trilemma.” Whether they promote and/or enable bailouts, austerity, or defaults on municipal debt, federal officials can avoid two of these harms, but not three: (1) moral hazard for state budgets; (2) worsening recessions; (3) reducing future state and local infrastructure investment. The companion piece will suggest how federal officials can navigate this trilemma in the current crisis.

Emergency Financial Management in Small Michigan Cities: Short-Term Fix Or Long-Term Sustainability?

Emergency financial management is a relatively recent and unique form of municipal governance that is designed to address local fiscal crises by concentrating the decision making power in the hands of a temporarily appointed chief executive. In this paper, we examine practices of emergency financial management in three Michigan cities in the Detroit metropolitan area to understand the role of emergency financial managers in helping the cities to address chronic fiscal distress. Through the analysis of data from comprehensive annual financial reports, we show that emergency financial management tends to produce budgetary-level improvements in fiscal condition. We also discuss policies that can assist emergency financial managers in bringing longer-term fiscal health to struggling cities.

What Causes the Local Fiscal Crisis in China: the role of intermediaries

Local governments in China are seriously under-funded relative to their assigned expenditure responsibilities for public services, resulting in the infamous ‘revenue–expenditure gap’. The dominant explanation of local fiscal difficulties given in the literature refers to central government behaviour, namely the excessive centralization of tax revenue, but it does not tally with the large flows of central subsidies to local coffers in more recent years. The alternative account we put forward stresses the working of an intermediary level embedded in the multi-tiered governance structure of a large country, and the interaction between local officials' fiscal behaviour and the revenue–expenditure gap. Employing fine-grained analysis of aggregate statistics and local case data, we argue that broader intergovernmental dynamics and practices of local intermediaries, and not only central government policy, are critical to fiscal health and government performance at the county level.

Surviving the Great Recession: Performance Management and the Budget Deficits of City Governments

Has performance management helped city governments in the U.S. cope with the current local fiscal crisis? Rational planning models and theories from public choice suggest that using performance inf...

The Impact of New York City’s 1975 Fiscal Crisis on the Tuberculosis, HIV, and Homicide Syndemic

In 1975, New York City experienced a fiscal crisis rooted in long-term political and economic changes in the city. Budget and policy decisions designed to alleviate this fiscal crisis contributed to the subsequent epidemics of tuberculosis, human immunodeficiency virus (HIV) infection, and homicide in New York City. Because these conditions share underlying social determinants, we consider them a syndemic, i.e., all 3 combined to create an excess disease burden on the population. Cuts in services; the dismantling of health, public safety, and social service infrastructures; and the deterioration of living conditions for vulnerable populations contributed to the amplification of these health conditions over 2 decades. We estimate that the costs incurred in controlling these epidemics exceeded 50 billion US dollars (in 2004 dollars); in contrast, the overall budgetary saving during the fiscal crisis was 10 billion US dollars. This history has implications for public health professionals who must respond to current perceptions of local fiscal crises.

Fiscal Adjustment under Centralized Federalism: Empirical Evaluation of the Response to Budgetary Shocks

Fiscal federalism implies a challenge of holding fiscal discipline at the local level. Recent analyses of fiscal adjustment have addressed the design of fiscal and political institutions for the US states, and have shown how tax limits and anti-deficit rules strengthen immediate shock adjustment. Here we extend the evidence to the case of centralized financing in Norway. In this system central government takes larger responsibility in smoothing decentralized government revenue, but at the same time the locals are more vulnerable to shocks due to limited room to maneuver. The empirical analysis of responses to budgetary shocks shows that local public investment is the main shock absorber in this system and that investments are procyclical. Local fiscal crisis is avoided, but decentralized government is destabilizing.

The States' Role in U.S. Local Government Fiscal Crises: A Theoretical Model and Results of a National Survey

This article hypothesizes four potential roles that states may play in dealing with local government fiscal crises: predict, avert, mitigate and prevent the recurrence of local fiscal crises. Based on a 50‐state telephone survey administered by the author to members of the National Association of State Auditors, Comptrollers and Treasurers in 2002, this article presents detailed information on states' roles in dealing with actual local government fiscal crises. The research found that ten states had formal definitions of local government fiscal crises while the remainder varied between having a working definition, having no definition, or leaving it to local authorities to define a fiscal crisis for themselves. Although the majority of states lacked a rigourous, legal definition of what constitutes a local government fiscal crisis, 36 states reported that they had had such crisis in recent history in their states. Seven overlapping categories of state approaches emerged: the directive approach, the proactive approach, the ad hoc approach, the special legislation approach, the reform approach, the takeover approach, and the responsive approach. States reported a wide range of activities under each of the hypothesized roles. In general, states tended to get involved after a crisis rather than before one occured.

The Collapse of the Bubble Economy and the Local Fiscal Crisis

(1999). The Collapse of the Bubble Economy and the Local Fiscal Crisis. International Journal of Political Economy: Vol. 29, Causes and Consequences of the Depression of the 1990s in Japan, pp. 65-86.

The Scope and Purposes of Corrections: Exploring Alternative Responses to Crowding

Current “social war” criminal justice policies lack rational planning and have contributed to the crowding crisis within the correctional system and to state and local fiscal crises. They have also generated an immense expansion in the scope of correctional control. However, proposals to reduce prison crowding through greater reliance on community corrections are more costly than commonly assumed. The authors propose a sanctions budget for corrections that requires choices among cost-effective policies based on available resources, intermediate sanctions, and explicit correctional objectives, including the restoration of rehabilitative purpose to the traditional prison.

The 1991 State and Local Fiscal Crisis

EVERY DECADE or so the state and local government sector begins to behave strangely. Either the aggregate budget surplus gets very high, as it did on three occasions in the 1970s and 1980s, or very low, as it has recently. Although a low aggregate budget surplus is not the worst of national tragedies, it can be the harbinger of other problems and the cause of painful budget cuts and tax increases. And for those worried about low national saving rates, a low or falling state and local budget surplus is another nail in the coffin. There is no dearth of potential explanations for the recent drop in the surplus. State and local politicians themselves have been quick to blame forces beyond their control-the recession, changes in federal grant policies (which were the main explanations for earlier budgetary swings), or federal mandates that states pick up new costs under medicaid and other federal programs. By contrast, economists who have looked at the present situation conclude that states and localities have caused their own problems. Stephen Moore has emphasized the rapid growth in state spending, and Steven Gold has pointed to states' unwillingness to raise taxes. I One goal of this paper is to answer some of these factual questionsWhat has caused the drop in the surplus? What role was played by external factors and by states' and localities' own policies? How damaging is the drop? I try to answer these questions with some simulations from a

Government as Bookie: Explaining the Rise of Lotteries for Revenue

The principal new form of legalized gambling in the past twenty years is the lottery. This article uses a Marxist framework to explain the spread of state-sponsored lotteries since 1964. It develops a complex understanding of a variety of events in the past 20 years to explain the recent popularity of lotteries. Among the phenomena of interest are state and local fiscal crises, caused in part by deindustrialization and capital mobility, and a system-wide crisis characterized by falling real earnings and rising unemployment. The first crisis influenced some states to want to use lotteries for revenue, while the second crisis helped overcome opposition to the legalization of lotteries. Understanding the appeal of lotteries in each case requires brief analyses of the causes of fiscal crises and the ways in which needs are created and satisfied in capitalism.

The Local Fiscal Crisis in Western Europe. Myths and Realities

The Local Fiscal Crisis in Western Europe. Myths and Realities

The Local Fiscal Crisis in Western Europe: Myths and Realities. Edited By L. J. Sharpe. (Beverly Hills, Calif.: Sage Publications, 1981. Pp. 272. $20.00.)

The Local Fiscal Crisis in Western Europe: Myths and Realities. Edited By L. J. Sharpe. (Beverly Hills, Calif.: Sage Publications, 1981. Pp. 272. $20.00.)

The Local Fiscal Crisis in Western Europe: Myths and Realities. Edited By L. J. Sharpe. (Beverly Hills, Calif.: Sage Publications, 1981. Pp. 272. $20.00.)

The Local Fiscal Crisis in Western Europe: Myths and Realities. Edited By L. J. Sharpe. (Beverly Hills, Calif.: Sage Publications, 1981. Pp. 272. $20.00.)

Book Reviews

Book reviewed in this article:Katznelson, I. 1981: City trenches. Urban politics and the patterning of class in the United States.Law, C. 1981: British regional development since world war I.Lee, M.‐G. editor, 1981: Toward a new community life: reports of the international Research Seminar on the Sae Maul Movement.Martin, R. L. editor, 1981: Regional wage inflation and unemployment.National Committee on Pilot Schemes to Combat Poverty 1981: Final report. Pilot schemes to combat poverty in Ireland 1974–80Newton, K. 1980: Balancing the books: financing problems of local government in west Europe.Sharpe, L. J. editor, 1981: The local fiscal crisis in western Europe: myths and realities.Pacione, M. editor, 1981: Problems and planning in third world cities.Saunders, P. 1981: Social theory and the urban question.

The Local Fiscal Crisis in Western Europe: Myths and RealitiesL. J. Sharpe, ed.Beverly Hills: Sage Publications, 1981, pp. 272

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The Local Fiscal Crisis in Western Europe: Myths and Realities, by L. James Sharpe

The Local Fiscal Crisis in Western Europe: Myths and Realities, <i>by L. James Sharpe</i>