Presentation is loading. Please wait.

Presentation is loading. Please wait.

Pawns or rooks? Local government responses to economic shocks, 1977-2011 Michael Craw Institute of Government University of Arkansas, Little Rock

Similar presentations


Presentation on theme: "Pawns or rooks? Local government responses to economic shocks, 1977-2011 Michael Craw Institute of Government University of Arkansas, Little Rock"— Presentation transcript:

1 Pawns or rooks? Local government responses to economic shocks, 1977-2011 Michael Craw Institute of Government University of Arkansas, Little Rock mccraw@ualr.edu

2 Research question Local governments have an ideal position to respond to local needs during a recession But CW holds that local governments also face significant economic constraints that limit responsiveness What explains variation in local government expenditures over differing economic conditions?

3 Theory 1: Local governments as pawns Local government own-source revenues are strongly tied to the state of the economy State intergovernmental revenues similarly are tied to the state of the regional/national economy Implication: local government revenues, and hence expenditures, may decline as tax base declines

4 Theory 2: Local governments as rooks Local governments face significantly increased demands for services during times of economic distress Hence seek additional revenue streams when tax base falls in order to continue services Demand for and participation in intergovernmental revenues may therefore increase as tax base falls, offsetting declining own-source revenues

5 Total and general local revenues, 1977- 2011 (2009 $000s) Source: Census of Governments Annual Government Finances Survey http://www.census.gov/govs/local/http://www.census.gov/govs/local/

6 Sources of local general revenues, 1977-2011 (2009 $000s) Source: Census of Governments Annual Government Finances Survey http://www.census.gov/govs/local/http://www.census.gov/govs/local/

7 Sources of local general revenue, 1993 and 2009 Source: Census of Governments Annual Government Finances Survey http://www.census.gov/govs/local/http://www.census.gov/govs/local/

8 Local direct general expenditures, 1977-2011 (2009 $000s) Source: Census of Governments Annual Government Finances Survey http://www.census.gov/govs/local/http://www.census.gov/govs/local/

9 Local direct general expenditures by function (excluding education), 1977-2011 (2009 $000s) Source: Census of Governments Annual Government Finances Survey http://www.census.gov/govs/local/http://www.census.gov/govs/local/

10 Distribution of direct general expenditures by function, 1993 and 2009

11 Empirical questions Pawns, rooks or both? – To what extent do local general expenditures respond to changes in own source revenues, state intergovernmental revenues, and GDP? – To what extent do local own source revenues and state intergovernmental revenues respond to changes in local general expenditures? Data source: Census Bureau’s annual summary of state and local government finances

12 Methods Endogenous variables: – Direct general expenditures – Own source revenues – State intergovernmental revenues Exogenous variable: GDP All variables differenced to become I(0) Testing criterion: Granger causality Statistical model: vector autoregression

13 Results: Equation 1 Coefficientz-scorep-value Equation 1: Direct general expenditures Direct general expenditures (differenced) Lag 1 0.020.060.95 Lag 2 -0.28-1.950.052 Own source revenues (differenced) Lag 1 0.683.740 Lag 2 0.361.670.095 State IGRs (differenced) Lag 1 0.862.20.028 Lag 2 0.591.480.14 GDP (differenced) Lag 0 -10,295.50-1.50.133 Lag 1 17,838.061.970.049 Lag 2 13,116.781.280.199 Constant-2743667-0.750.452

14 Results: Equation 2 Equation 2: Own-source revenuesCoefficientz-scorep-value Direct general expenditures (differenced) Lag 1 -0.15-0.650.517 Lag 2 -0.04-0.270.787 Own-source revenues (differenced) Lag 1 0.321.910.056 Lag 2 0.190.950.341 State IGRs (differenced) Lag 1 -0.42-1.140.252 Lag 2 -0.09-0.240.811 GDP (differenced) Lag 0 4,883.600.760.446 Lag 1 22,898.172.70.007 Lag 2 22,657.362.370.018 Constant 5,592,734.001.640.102

15 Results: Equation 3 Equation 3: State IGRsCoefficientz-scorep-value Direct general expenditures (differenced) Lag 1 -0.09-0.80.425 Lag 2 -0.14-2.070.039 Own-source revenues (differenced) Lag 1 0.101.190.233 Lag 2 0.181.740.082 State IGRs (differenced) Lag 1 0.321.730.084 Lag 2 0.442.270.023 GDP (differenced) Lag 0 6,201.971.880.06 Lag 1 9,152.552.090.036 Lag 2 3,418.680.690.488 Constant -1,608,061.00-0.910.361

16 Granger causality tests Equation 1: Direct general expenditures – Own-source revenues: p < 0.001 – State IGRs: p =.028 Equation 2: Own-source revenues – Direct general expenditures: p = 0.744 – State IGRs: p = 0.503 Equation 3: State IGRs – Direct general expenditures: p=.054 – Own-source revenues: p=.089

17 Conclusions Local governments have traits of pawns: – Lagged own-source revenues and state IGRs Granger cause expenditures – Own-source revenues and state IGRs in turn are caused by GDP – Direct general expenditures fail to Granger cause own- source revenues But they may be rooks in the intergovernmental arena: – Direct general expenditures may Granger cause state IGRs: a drop in local expenditures may be followed (with a lag) by an increase in state IGRs


Download ppt "Pawns or rooks? Local government responses to economic shocks, 1977-2011 Michael Craw Institute of Government University of Arkansas, Little Rock"

Similar presentations


Ads by Google