The other side of the local government ledger—The association between revenue growth and population growth

Abstract

Population growth exerts an impact on both sides of the local government accounting ledger—expenditure and revenue. Despite this fact, the vast scholarly literature on local government finance has been myopically focussed on expenditure functions. This apparent neglect to also consider the revenue side of the ledger is problematic because many regulators across the globe have exhorted local governments to pursue growth according to the assumption that it will promote fiscal health. In this article, we first set out a number of propositions that combine to cast some doubt on the common wisdom dispensed by local government policy‐makers. Following this, we empirically explore the effects of population growth on revenue by making recourse to a comprehensive 10‐year panel of revenue and population data. We conclude our work with some important public policy recommendations arising from the need to mitigate the prima facie surprising results that we obtain.Points for practitioners Public policy architects have exhorted local governments to pursue population growth as a way to mitigate financial sustainability problems. However, this advice has been based on assumptions only and not subjected to empirical investigation. Econometric estimations demonstrate a negative association between unit revenue and population growth which means that the policy advice is likely to exacerbate financial distress. A number of changes could be made to local government taxation, pricing, and grants that would mitigate the deleterious effects of population growth on financial sustainability.

Intergovernmental Transfers and Local Revenues Again—A Relook at the Ghanaian Local Government Case

“…According to Drew et al (2023), local government revenues across the world fall into three categories: 1) Taxation 2) Fees and charges 3) Grants. The tax revenues typically come from property taxes, while fees and charges are access charges for services, including rubbish collection and sewerage services.…”

“…The tax revenues typically come from property taxes, while fees and charges are access charges for services, including rubbish collection and sewerage services. Grants are federal grants to local jurisdictions (Drew et al 2023; Wang and Pagano 2017). The local revenues categorization by Drew et al (2023) suggests that own revenues primarily come from categories 1 and 2.…”

“…Grants are federal grants to local jurisdictions (Drew et al 2023; Wang and Pagano 2017). The local revenues categorization by Drew et al (2023) suggests that own revenues primarily come from categories 1 and 2. The current study argues that category 3 revenues (transfers) affect categories 1 and 2 revenue outturns.…”

“…The economics literature provides no guidance on how population affects local government revenues. As noted by Drew et al (2023), the effect of population growth on local government revenues remains largely unknown. Drew et al (2023) argue that the effect of population growth on local government revenues likely depends on the source of the population growth.…”

“…As noted by Drew et al (2023), the effect of population growth on local government revenues remains largely unknown. Drew et al (2023) argue that the effect of population growth on local government revenues likely depends on the source of the population growth. Organic population growth (births less deaths) affects revenue components that have to do with property taxes but only in the long-run when children reach the age of homeownership.…”