Association for Public Policy Analysis & Management

The focus of academics and practitioners on government fiscal condition went to center stage after the Great Recession. Previous studies have limitations in the research of government fiscal condition determinants. Evidence on this topic is insufficient and inconclusive; the measurement of government fiscal condition is sometimes unduly simplified; research samples are often collected from a single state; the usage of one-year cross-sectional data is common; the selection of explanatory variables is arbitrary and incomplete. Lastly, few previous studies empirically evaluate the interactive effects between the factors of external environment and government internal management on government fiscal condition.

This research continues to investigate the determinants of municipal government fiscal condition, with the research focus on municipal structures. Municipal government officials manage public affairs, formulate and implement public policies, and exert their influence on government performance in different structural settings. This study constructs an index to measure the political or administrative (professional) nature of municipal structures through investigating several essential structural characteristics of municipalities, such as the mayor-council or council-manager statutory form, the existence of a chief administrative officer (CAO), and so forth.

This research contributes to the related literature by theoretically arguing how municipal structures can make a difference in government management efficiency and accountability, consequently influencing government fiscal condition. Both management efficiency and accountability of government officials are critical for improving government fiscal condition. The political municipal structures have advantages in assuring government management accountability, while the administrative (professional) municipal structures have advantages in improving government management efficiency. The theoretical model assumes that an optimal municipal structure is the one that can incorporate characteristics of both the political (mayor-council) and administrative (council-manager) structures, therefore minimizing the sum of the expected inefficiency and monitoring costs.

The empirical analysis utilizes an unbalanced panel of U.S. municipalities with a total of 6,519 observations and derives data from three national municipal structure surveys conducted by the International City/County Management Association (ICMA) and other resources. The empirical findings support a curvilinear relationship between the coded municipal structure political-administrative index and government fiscal condition in cash and budgetary solvencies, presenting an inverted U-shape. Moreover, municipal structures can exert influence on government fiscal condition through interacting with factors of the external environment.