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Myopic or Constrained by Balanced-Budget Rules? The Intertemporal Spending Behavior of Norwegian Local Governments

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  • Lars-Erik Borge
  • Per Tovmo

Abstract

The paper analyzes the intertemporal spending behavior of Norwegian local governments with particular attention to liquidity constraints imposed by balanced-budget rules. The main findings are: (i) On average, local government spending behavior is neither perfectly forward looking nor fully myopic. (ii) Local governments with good fiscal conditions behave more forward looking than other local governments. (iii) A high degree of party fragmentation is associated with less forward-looking behavior. The overall assessment is that the departure from rational forward-looking behavior reflects both liquidity constraints imposed by balanced-budget rules and myopic behavior.

Suggested Citation

  • Lars-Erik Borge & Per Tovmo, 2009. "Myopic or Constrained by Balanced-Budget Rules? The Intertemporal Spending Behavior of Norwegian Local Governments," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(2), pages 200-219, June.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200906)65:2_200:mocbbr_2.0.tx_2-
    DOI: 10.1628/001522109X466518
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    Cited by:

    1. Foremny, Dirk & Solé-Ollé, Albert, 2016. "Who's coming to the rescue? Revenue-sharing slumps and implicit bailouts during the Great Recession," ZEW Discussion Papers 16-049, ZEW - Leibniz Centre for European Economic Research.
    2. Persson, Lovisa, 2013. "Consumption smoothing in a balanced budget regim," Working Paper Series 2013:19, Uppsala University, Department of Economics.
    3. Maria Cornachione Kula, 2014. "Are US state and local governments consumption smoothers?," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 41(1), pages 87-100, January.
    4. Albert Solé-Ollé & Elisabet Viladecans-Marsal, 2011. "Local spending and the housing boom," Working Papers 2011/27, Institut d'Economia de Barcelona (IEB).
    5. Albert Solé-Ollé & Elisabet Viladecans-Marsal, 2011. "Local spending and the housing boom," Working Papers 2011/27, Institut d'Economia de Barcelona (IEB).
    6. Craig, Steven G. & Hemissi, Wided & Mukherjee, Satadru & Sørensen, Bent E., 2016. "How do politicians save? Buffer-stock management of unemployment insurance finance," Journal of Urban Economics, Elsevier, vol. 93(C), pages 18-29.
    7. Solé-Ollé, Albert & Viladecans-Marsal, Elisabet, 2019. "Housing booms and local spending," Journal of Urban Economics, Elsevier, vol. 113(C).
    8. Federico Revelli, 2013. "Tax Mix Corners and Other Kinks," Journal of Law and Economics, University of Chicago Press, vol. 56(3), pages 741-776.
    9. Lars-Erik Borge & Arnt O. Hopland, 2017. "Schools and public buildings in decay: the role of political fragmentation," Economics of Governance, Springer, vol. 18(1), pages 85-105, February.
    10. Halse, Askill H., 2016. "More for everyone: The effect of local interests on spending on infrastructure," European Journal of Political Economy, Elsevier, vol. 43(C), pages 41-56.
    11. Federico Revelli, 2013. "Tax Mix Corners and Other Kinks," Journal of Law and Economics, University of Chicago Press, vol. 56(3), pages 741-776.
    12. Christopher Biolsi & H. Youn Kim, 2021. "Analyzing state government spending: balanced budget rules or forward-looking decisions?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(4), pages 1035-1079, August.

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    More about this item

    Keywords

    balanced-budget rules; intertemporal spending behavior; consumption smoothing; local government;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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