Thursday, November 7, 2013
DuPont Ballroom F (Washington Marriott)
*Names in bold indicate Presenter
The concept of fiscal sustainability has become increasingly used over the last twenty years, although the term fiscal sustainability did not appear until the 1990s. Recent work has demonstrated a plethora of definitions of fiscal sustainability at the state and local level. However, this article notes that there are several concerns with the existing definitions of fiscal sustainability: nowhere do these existing definitions acknowledge that balancing a budget is only a necessary condition for fiscal sustainability – it is not a sufficient condition; and much of literature on fiscal sustainability at the sub-national level ignores the role of intergovernmental fiscal relations. Despite these problems, state and local governments are being forced to confront the issues of fiscal sustainability. To bridge the gap, this paper discusses a sufficient condition for fiscal sustainability and examines the importance of intergovernmental aid in determining the sustainability. Based on formal statistical work that focuses on fiscal sustainability, this paper adopts the cointegration test rooted in Mahdavi and Westerlund (2011) as a measure of fiscal sustainability. However Mahdavi and Westerlund (2011) limit their analysis to the aggregate of state-local governments. This study focuses more precisely on the county and the city level to investigate the importance of intergovernmental aid for fiscal sustainability of local governments. The dataset is collected from the U.S. Census Bureau and the comprehensive annual financial reports (CAFRs) of the municipalities. This study tests 610 counties for 37 years (from 1970 to 2006) and 761 cities for 12 years (from 1995 to 2006). Preliminary analysis result shows that the more reliant on own-source revenue, the higher chance of fiscal unsustainability, and that intergovernmental aid plays an important role for fiscal sustainability to be held.