Local Government Fiscal Behaviour and Intergovernmental Finance in a Period of Slow National Growth: A Comparative Analysis

Most recent analysts suggest that many local governments are facing serious fiscal difficulties. This article contains reviews of the experience of nine nations, between 1976 and 1982, in terms of the impact of slow economic growth on local expenditures, particularly in terms of changes in intergovernmental grants, and this is followed by an examination of the kinds of revenue and expenditure adjustments which local authorities have made in the light of these changes. Generally speaking, the results reveal that although national government expenditure patterns vary during the latter part of the review period, in all cases grants were singled out as a target for expenditure reductions, and that there were few distinctions between federal and unitary systems. In most countries, local authorities responded by increasing local tax receipts, and most did not suffer any decline in total revenues in real terms, though revenues increased less rapidly during the latter part of the review period when economic growth was generally slower. Revenues were maintained largely by increases in nontax revenues and then by increases in taxes. However, the most intriguing finding is the variability in the behaviour of local fiscal systems in the nine countries studied. The paper is concluded with some tentative suggestions of explanations for this variability.