The Dynamic Response of Municipal Budgets to Revenue Shocks

Arbeitspapier

We study the fiscal and tax response to intergovernmental grants, exploiting quasi-experimental variation within Germany's fiscal equalization scheme triggered by Census revisions of official population counts. Municipal budgets do not adjust instantly. Instead, spending and investments adapt within five years to revenue gains, while adjustment to revenue losses is more rapid. Yet, the long-run response is symmetric. The tax response is particularly slow, stretching over more than a decade. Well-known empirical "anomalies" in public finance such as the flypaper effect are thus primarily a short-run phenomenon, while long-run fiscal behavior appears more consistent with standard theories of fiscal federalism.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 14369

Classification and Topics

• Classification: Wirtschaft ; State and Local Taxation, Subsidies, and Revenue ; State and Local Budget and Expenditures ; Intergovernmental Relations; Federalism; Secession ; Fiscal Policy
• Subject: intergovernmental grants ; fiscal transfers ; government spending ; local taxation ; Census Shock ; flypaper effect

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Helm, Ines ; Stuhler, Jan
• Event: Veröffentlichung
• (who): Institute of Labor Economics (IZA)
• (where): Bonn
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/236400
• Last update: 10.03.2025, 11:45 AM CET