The effect of fiscal decentralization on municipal fiscal condition: An empirical study of large American cities
Wang, Xiaoheng Cheng, Jen-Chi
Wang, Xiaoheng
Cheng, Jen-Chi
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2023-06-29
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Article
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Fiscal condition,Fiscal decentralization,Municipal government
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Citation
Wang, X., & Cheng, J.-C. (2023). The Effect of Fiscal Decentralization on Municipal Fiscal Condition: An Empirical Study of Large American Cities. State and Local Government Review, 0(0). https://doi.org/10.1177/0160323X231181332
Abstract
Local governments' ability to sustain a healthy fiscal structure and meet service obligations is critical in avoiding financial hardship. This study empirically tests the effects of intrastate fiscal decentralization on municipal fiscal health that is measured by cash solvency, budget solvency, and long-run solvency. The two key variables, revenue decentralization and expenditure decentralization, are constructed to represent intrastate fiscal decentralization. The panel dataset includes 100 large U.S. cities and covers fiscal years 2007 through 2016, which encompasses periods before, during, and after the Great Recession started in 2008. The model estimation is based on a two-way fixed-effect panel regression. The results show that an increased degree of state-local revenue decentralization is significantly associated with higher long-term solvency, while an increased degree of state-local expenditure decentralization leads to higher levels of cash solvency and lower levels of long-term solvency. Copyright The Author(s) 2023.
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SAGE Publications Inc.
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State and Local Government Review
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0160-323X