The effect of revenue diversification and form of government on public spending

Purpose - Revenue diversification interacting with form of government that has different management behaviors may produce a variation in the level of public spending. The purpose of this paper is to understand how revenue diversification interacts with form of government in determining the level of public spending. Design/methodology/approach - A cross-sectional research design with the analysis of interaction effects was employed in order to achieve this research objective. Drawing from the economic and financial management perspectives on revenue diversification, this study proposes the following hypotheses: in the council-manager form, greater revenue diversification leads to less spending; in the mayor-council form, greater revenue diversification leads to more spending; and mayor-council governments with diversified revenues spend more than council-manager governments. Findings - The regression results support the second and third hypotheses, but not the first hypothesis. Originality/value - This study offers a robust link between revenue diversification and form of government by examining how their interaction produces a variation in the level of public spending.