Fiscal severity and the choice of budget gap closing strategies

Abstract

The great recession of 2008 forced US local governments to pursue a series of measures to maintain a balanced budget. The authors investigated local governments’ response to the great recession with a focus on Florida, where a crash in the housing market led to a severe erosion of the property tax base. Following the classic cutback management theory, the authors examine how the severity of fiscal stress affected the choice of budget-balancing strategies by Florida’s local governments. The severity of fiscal stress was found to affect not only the number of budget gap closing strategies but also the pattern of adoption of these strategies consistent with the administrative response model.

Keywords:

• Administrative response
• budget gap
• cutback strategy
• Florida local governments: fiscal stress

Acknowledgement

Milena Neshkova acknowledges the support of the National Research Foundation of Korea (NRF-2017S1A3A2065838). Both authors acknowledge the support of the Kaufman Grant awarded by the Eugenio Pino & Family Global Entrepreneurship Center at Florida International University.

IMPACT

This paper examines how the severity of fiscal stress affects the choices of budget-balancing tactics employed by Florida’s local governments. It is important for the local governments’ budget/finance directors to know the effectiveness of budget-balancing strategies while facing fiscal challenges. The analysis shows that the local governments’ choices follow the administrative response model, which are systematic and to some extent follow a sequence. The budget-balancing tactics tend to be more radical and visible as fiscal stress gets more severe. Professional expertise matters while formulating an appropriate combination of budget gap closing tactics that are most suitable for the particular fiscal situation.

Additional information

Notes on contributors

Hai (David) Guo

Hai (David) Guo is an Associate Professor in the Department of Public Administration, Steven J. Green School of International and Public Affairs, Florida International University, USA, and a visiting professor at the School of Public Administration, Nanjing University of Finance and Economics, China.

Milena Neshkova

Milena Neshkova is an Associate Professor in the Department of Public Administration, Steven J. Green School of International and Public Affairs, Florida International University, USA.