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The impact of revenue diversification on municipal debts: comparing short-term and long-term debt levels

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  • Jongmin Shon
  • Junghack Kim

Abstract

The extant literature has offered two competitive implications of revenue diversification: revenue stabilisation and fiscal illusion. Stabilisation helps governments have less revenue volatility, while fiscal illusion expands tax burdens through the increase in expenditure. The competitive views on revenue diversification leave a niche to explore the association between revenue diversification and debt levels in local governments. We estimate the static and dynamic effects of revenue diversification on both short-term and long-term debt levels in 150 fiscally standardised cities. Our findings show that local governments with greater revenue diversification are more likely to reduce short-term debts while expanding long-term debts. The findings imply that a stabilised revenue structure helps local governments better manage operational budgets but also invest in capital projects with greater debt capacity.

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  • Jongmin Shon & Junghack Kim, 2019. "The impact of revenue diversification on municipal debts: comparing short-term and long-term debt levels," Local Government Studies, Taylor & Francis Journals, vol. 45(2), pages 241-261, March.
    • Handle: RePEc:taf:flgsxx:v:45:y:2019:i:2:p:241-261
    DOI: 10.1080/03003930.2018.1552144
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    Cited by:

    1. Craig L. Johnson & Tima T. Moldogaziev & Martin J. Luby & Ruth Winecoff, 2021. "The Federal Reserve Municipal Liquidity Facility (MLF): Where the municipal securities market and fed finally meet," Public Budgeting & Finance, Wiley Blackwell, vol. 41(3), pages 42-73, September.
    2. Paula Gomes Dos Santos & Fábio Albuquerque, 2023. "Does the Average Payment Period Play a Relevant Role in Explaining the Portuguese Municipalities’ Financial Distress?," Economies, MDPI, vol. 11(7), pages 1-22, July.
    3. Stobieniecka Weronika & Białek-Jaworska Anna, 2020. "Do local governments use municipal companies for off-balance-sheet financing?," Central European Economic Journal, Sciendo, vol. 7(54), pages 242-257, January.

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