Institutional Influences on Local Government Finance in Three Essays

Local governments are creatures of their ecosystems. In this dissertation, institutional influences on local government finances are assessed both theoretically and empirically in this three-essay dissertation. Employing two tax and expenditure limitations (TELs) and local government form, this dissertation evaluates how these three components along with the local government ecology, influence financial outcomes around local fiscal condition, revenue capacity, and forecasting bias. First, this dissertation examines the effect of removing assessment restrictions on the solvency of local governments. As all TELs are not equivalent, expected impacts from assessment restrictions should be comparatively minimal. Using a multiple synthetic matching design, I match Minnesota municipalities against weighted counterfactuals before the lifting of assessment restrictions in 2011 and evaluate outcomes. Results indicate that municipal solvency was unaffected by a release from assessment restrictions. The second essay evaluates the moderating effect of voter support of TELs on property taxes. I propose that municipalities in favor of restrictions would have limited tax growth, even without restrictions; and oppositional constituencies face the greatest shift. Using voter support for the Taxpayer Bill of Rights Amendment in Colorado as a moderator, constituent preferences differentiate the change in property tax trends from implementation of the amendment. Employing both a Hausman-Taylor model and a comparative matching design, a significant relationship is found between the impact of property tax restrictions and the preferences of local government voters. In the last essay, I investigate an association between form of government and municipal revenue forecasting bias. Granting that a municipal governments form alters the nature of the governance that it provides; the essay presents that a reformed council-manager form of government would have lower revenue forecast bias via political pressure than a mayor-council form. Results from pooled ordinary least squares design indicate no statistically significant relationship between forecast bias and municipal form of government. The dissertation serves to illuminate, and eliminate, some institutional predictors of local government finances, and intones an ecological dominance over local government finance. Further, the dissertation provide significant nuance in how additional research can provide definitive answers on the effects of structural changes on the finances of local governments.