The Effect of State Fiscal Monitoring Systems: Evidence from Regression Discontinuity Design
*Names in bold indicate Presenter
New York State has implemented the fiscal monitoring system based on five categories – 1) Year-end fund balance, 2) Operating deficits, 3) Cash position, 4) Use of short term debt, and 5) Fixed cost. The state government labels local governments with more than 65 points as a significant fiscal stress entity. This system allows us to compare a set of local governments above and below the cutoff score about their financial condition, which is the main feature of regression discontinuity design in program evaluation literature. In addition, we take advantage of difference-in-difference strategy and further investigate whether local governments change their financial behavior in response to fiscal score as well. Findings would inform us whether this labeling system is working effectively and how we can design a better fiscal monitoring system. This study has a potential to inform discussion about the role of state government in enhancing local government’s financial condition.