Stories and Sentiment in State and Local Government Finance

Abstract

Budgets and financial statements convey essential information about revenues, expenditures, assets, and liabilities. But perhaps more important, they also convey positivity, negativity, fairness, uncertainty, and other social sentiments. This essay examines what we know, and what we need to know, about how state and local governments communicate financial sentiment. The main conclusion is that they do convey clear financial sentiments through traditional financial reporting methods and through new channels like social media. Moreover, those sentiments shift predictably in response to broader economic trends and policy priorities, and can shape how investors and other stakeholders view a government's finances. This raises several practical questions about how states and localities can measure financial sentiment, and many normative questions about whether and how they ought to attempt to manage it. The discussion also includes a brief demonstration of how to extract financial sentiment from state and local Twitter activity.

The impact of inflation on local government fiscal health

“…If done well, the structure may also address equitable tax collection. Solutions will differ by local government characteristics, but at a minimum should consider the optimal degree of revenue diversification as it impacts both revenue adequacy and volatility (Jimenez and Afonso, 2022; Marlowe, 2023). Local governments may need to tap into the taxation of services, both those provided in person and online, to fully capture their economic base.…”