In the past two decades, much of the literature in the area of government financial management has been devoted to studying the causes of fiscal stress. Most studies emphasized the role of such factors as economic cycles, business relocation and factors beyond the control of policy makers as major causes of fiscal stress. This study extends the scope of the research in this area to investigate whether state and local fiscal structures contribute to fiscal stress. Using a pooled cross-sectional time-series approach with the state-local data ranging from 1982 to 1997, the result shows that: there is more significant difference in the composition of tax structures than that of total revenue; high aggregate spending is associated with high fiscal stress; state and local governments over-commit on the social welfare category; local revenue diversification is associated with low fiscal stress; and fiscal decentralization or high spending responsibility assumed by local governments is associated with low fiscal stress. The findings suggest that local revenue diversification and fiscal decentralization can be used as measures to reduce fiscal stress.

In the first half of the 1990s, some local government investment pools (LGIPs) suffered losses from derivatives investments. Although the losses came from derivatives, the actual cause of the losses was the violation of public-fund prudent investment practices. This article provides a strategy to prevent future losses for LGIPs' participants by looking at the pattern of return on investment of the pools. Our proposal is that rates of return on state pools that co-move with market rates are generally an indication of adherence to prudent investment practices. We demonstrate the viability of this proposal by using co-integration methodology. The implication is that if rates of return on a state pool do not co-move with market rates, they may indicate the violation of prudent investment practices.

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Like all Caribbean destinations, the Cayman Islands has two sectors of tourism: stay-over tourism and cruise-ship tourism. Before the 1990s, the official Cayman Islands' tourism strategy placed more emphasis on the stay-over sector. After the significant drop in the number of stay-over visitors in the late 1990s, the official stance shifted, placing more emphasis on the cruise-ship sector with the intent of converting cruise ship visitors into stay-over visitors. This study investigates the simultaneous relationship between the two sectors. Results suggest that in terms of the number of visitors generated to each other a) both sectors of tourism are simultaneously related, b) stay-over tourism is a substitute for cruise-ship tourism, and c) cruise-ship tourism is a complement to stay-over tourism. Policy makers should therefore note that while stay-over tourism is a substitute for cruise-ship tourism, cruise-ship is actually a complement to stay-over tourism.

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