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Accounting for the State Fixed Effect for Municipal Cash Reserves: The Role of Financial and Institutional Variables

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  • Kawika Pierson
  • Jon C. Thompson
  • Fred Thompson

Abstract

One of the most important predictor variables in multistate studies of American municipal cash reserves is the state in which a municipality is located, and to date no research has explored why. In this paper, we show that two broad categories of variables can account for a large fraction of this puzzle. Average differences in financial variables and state-to-state institutional differences combine to absorb over 80% of the importance of state fixed effects, with financial variables mostly accounting for why cities in some states save less than the national average, and institutional variables doing a better job of accounting for why cities in some states save more than the national average.

Suggested Citation

  • Kawika Pierson & Jon C. Thompson & Fred Thompson, 2022. "Accounting for the State Fixed Effect for Municipal Cash Reserves: The Role of Financial and Institutional Variables," Public Finance Review, , vol. 50(2), pages 169-205, March.
    • Handle: RePEc:sae:pubfin:v:50:y:2022:i:2:p:169-205
    DOI: 10.1177/10911421221094348
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    References listed on IDEAS

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    5. Fred Thompson & Kawika Pierson & Michael L. Hand & Michael U. Dothan, 2017. "Is a Good Normative Model of Public Spending Run Backward a Good Positive Model?," Public Budgeting & Finance, Wiley Blackwell, vol. 37(2), pages 35-57, June.
    6. David Mitchell & Whitney Davis & Rebecca Hendrick, 2021. "Learning from the Joneses: The professional learning effect of regional councils of government on municipal fiscal slack in suburban Chicago," Public Budgeting & Finance, Wiley Blackwell, vol. 41(2), pages 3-21, June.
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    Cited by:

    1. Kawika Pierson & Jon C. Thompson & Fred Thompson, 2024. "Do what we did last year, but do not stray too far from the pack: A behavioral public finance approach to municipal cash reserves," Journal of Regional Science, Wiley Blackwell, vol. 64(3), pages 786-803, June.

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