Flypaper effect and partisanship theories best explain municipal financial performance in Latin America

ABSTRACT

There is an ongoing debate about the determinants of municipal financial performance around the world, including Central America. This article fills a research gap using data from the 298 Honduran municipalities for 2002–2015. Partisanship theories are found to be the strongest explanatory factor, for leftist governments show greater total municipal spending. Political alignment also has a weak, positive impact on investment spending. The electoral legislation is working properly in Honduran municipalities, since the data reject an opportunistic political budget cycle. Furthermore, Honduran municipalities show diseconomies of scale, for higher population density means greater per capita expenditures. The economic level impacts positively on expenditure per capita, which confirms Wagner's Law. Regarding transfers, we find a strong flypaper effect. As a point for practitioners, the granting government should monitor that this extra spending is the one intended with the transfers.

KEYWORDS:

• Honduras
• municipal government
• expenditure
• tax
• investment
• flypaper effect

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Additional information

Funding

The author(s) reported there is no funding associated with the work featured in this article.

Notes on contributors

Francisco Bastida

Francisco Bastida Full professor at Prince Sultan University (Saudi Arabia), and researcher at the University of Murcia (Spain). He teaches management accounting at the University of Murcia and he has taught it at the University of Illinois at Chicago. He also teaches accounting information systems courses and courses in several master degrees at the University of Murcia. His current research focuses on the impact of transparency in government financial reporting from an international perspective, and on public finances. He has published, among others, in the following journals: Applied Economics, Public Administration, Public Administration Review, International Public Management Journal, Kyklos, Public Choice, American Review of Public Administration, Fiscal Studies and Journal of Urban Planning and Development-ASCE. He is Editorial Board Member of the journal International Journal of Economics and Accounting and of the Journal of Public Budgeting, Accounting and Financial Management. He also works on consulting projects about management accounting implementation.

Lorenzo Estrada

Lorenzo Estrada Full-time professor of Business Education Department at the -UPNFM- (Honduras). PhD student at the University of Murcia. He teaches Financial Accounting, Cost Accounting, Finance Management at the UPNFM. His current research focuses on the impact of transparency on government financial reporting and on citizens' trust.

María-Dolores Guillamón

María-Dolores Guillamón Professor of Financial Economics and Accounting at the University of Murcia (Spain). She teaches public sector accounting and management accounting at the University of Murcia. Her current research focuses on the impact of transparency in government financial reporting from an international perspective, on the evaluation of government efficiency and on public finances. He has published, among others, in the following journals: Government Information Quarterly, Lex Localis - Journal of Local Self-Government, Journal of Forecasting, Applied Economics, International Public Management Journal, International Review of Administrative Sciences and Journal of Urban Planning and Development-ASCE. She also works on consulting projects about management accounting implementation.