Does devolution crowd out development? A spatial analysis of US local government fiscal effort

Abstract

Devolution to the subnational state and local level has increased reliance on locally raised revenue to provide basic social, infrastructural, and economic development services. We conduct multilevel regression models of local government fiscal effort (locally raised revenue normalized by population and income) of all county areas in the continental United States for the period 2002-2007. Spatial regression and geographically weighted regression are used to understand differential spatial effects of subnational state policies on local fiscal effort across counties. In contrast to conventional fiscal federalism theory, which argues local government is the developmental state, we find increased spatial inequality as expenditures driven by local need may crowd out expenditures related to growth and development. Nonmetropolitan counties and older suburbs exhibit higher local effort, while suburban outlying areas have lower effort. State rescaling requires more attention to policies of the subnational state, particularly state aid and state centralization of fiscal responsibility to ensure that both redistributive and developmental expenditures can be maintained under devolution.

Urban Local Self Government in India: Infrastructure Development and Performance Analysis

“…More the use of fund, more the expenses for urban development but mobilisation of own revenue and higher utilisation of external fund in a judicious manner expedite the development process because most of the governments under third tier are dependent on grants devolved from upper tiers. Psycharis, Zoi and Iliopoulou (2016) and (Xu and Warner, 2016)have rightly stated that higher degree of fiscal decentralisation entails increased reliance on locally raised revenue to provide basic social, infrastructural, and economic development services and devolution is causing redistributive expenditures to crowd out economic development investment at the local level. ULSGs of India should be cautious about this observation.…”

“…Higher degree of fiscal decentralisation entails increased reliance on locally raised revenue to provide basic social, infrastructural, and economic development services. So,redistribution of expenditures should be allowed to crowd out economic development investment at the local level (Psycharis, et al, 2016;Xu et. al., 2016).…”

“…Zoltan, Hajnal and Trounstine (2010) have repeatedly used regression on numerous financial and non-financial variables and used correlation coefficient (r > .40) for dropping of variables on the data of localities during 1986 to 2001as per International City/County Manager's Association Surveys (ICMA). (Xu & Warner, 2016) have used multilevel regression models of local government fiscal effort (locally raised revenuenormalized by population and income) of all county areas in the continental United States forthe period 2002. (Bhattacharyya & Bandyopadhyay, 2012 have uniquely used dummy dichotomous independent variables for presence or absence of financial controls along with other variables in regression analysis to assess the impact of financial control in expenditure management.…”

Geographies of Local Government Stress after the Great Recession

“…However, in a multi‐level governance system, how localities experience stress and their responses will vary (Kitson et al ; Martin ; Xu and Warner ). The literature on state rescaling in the USA emphasizes variation in state level behaviour in a multi‐level governance system and the internal institutional attributes that determine local responses (Lobao and Adua ; Xu and Warner ). What does the landscape of stress and local responses look like across the USA, and what are the implications for spatial inequality?…”

“…The state rescaling literature has emphasized the need to examine the diversity in local responses to austerity (Peck et al ; Warner and Clifton ), but empirical studies that capture diversity across the nation are few (e.g. Kim and Warner ; Kitson et al ; Martin ; Pagano et al ), and attention to rural impacts is limited to data from before the Great Recession (Lobao and Adua ; Lobao et al ; Xu and Warner ). This article addresses this gap.…”