Austerity Regimes at the Local Level: Examining Fiscal Effects of Austerity Commissioners Using a Time-Series Synthetic Control Method

Abstract

From a democratic perspective, the replacement of government or parliament by a public manager to enforce budget discipline marks a serious intervention. Transferred to the local level, the replacement of the mayor and the council in three German municipalities by a state official (a so-called state commissioner) in recent years has raised questions about the legitimacy and adequacy of such a strong interventionist instrument. One crucial answer to be given to this legitimacy issue concerns effectiveness, in other words whether the instrument can fulfill its designated task by improving the local fiscal situation since the fiscal success of the commissioner is a basic prerequisite for legitimacy. By using a time-series approach of the synthetic control method (SCM) and constructing a synthetic comparison case to the town of Altena, an answer regarding the commissioner’s potential to reduce the short-term debt can be given. The commissioner was successful in limiting the debt increase and seems to have reversed the debt trend. This finding supports the effectiveness of rather hierarchical instruments for ensuring fiscal discipline at the local level and thereby adds to broadening the international public management literature on municipal takeovers.

Keywords:

• austerity commissioner
• austerity policy
• local public finance
• municipal takeover
• time-series synthetic control method

Notes

Notes

1 There is a lively debate about how case study and large-n design influence each other. Quantitative approaches can help structuring case studies, on the other hand the careful selection of observations for quantitative applications can be improved by case studies Abadie et al. (2015, p. 495).

2 For more technical details see Abadie et al. (2010) and Abadie, Diamond, and Hainmueller (2011).

3 For more technical details see Becker and Klößner (2018).

4 At this stage different combinations of predictor variables have been tested. The final selection of the variables has been done on the basis of a good pre-treatment fit although of course other predictors are conceivable as well. Since a time-series approach for the prediction is used only predictors that vary over time are considered.

5 The public personnel, the number of unemployed persons and the share of persons that receive public social security benefits are used because the change of the accounting system in 2010 makes the overtime comparison of cash flows difficult. Personnel and social security are the two most relevant expenditure items and on average account for about 40 percent of local government spending. In financially distressed urban areas, the share of social expenditure is even higher. According to a nationwide study, both expenditure items are the most relevant ones in predicting local financial distress (Bogumil, Holtkamp, Junkernheinrich, & Wagschal, 2014).

6 The trend for the absolute values instead of the per capita is exactly the same and, due to limited space, omitted from this figure. From a substantial point this similarity makes sense since the population does not change significantly over time.

Additional information

Notes on contributors

Steffen Zabler

Steffen Zabler is a research associate at the Chair of Political Science at the German University of Administrative Sciences in Speyer, Germany. His research interests include public finance, local government, administrative reforms, as well as methodology and statistics.