Exploring Countercyclical Fiscal Policy in Local Government: Moving Beyond an Aggregated Approach

Abstract

There is a renewed interest in the fiscal health of local governments in the United States, which is being driven in part by academic research, professional organizations, and the economy. This renewed interest also includes how local governments use their cash reserves for countercyclical fiscal policy, which is a stream of research that has received minimal attention in the literature. We respond in this article by exploring how 97 North Carolina counties used their cash reserves from 2005 to 2012, which includes the great recession of 2008 and 2009. Our findings provide some evidence of countercyclical fiscal policy in local government when exploring the use of cash reserves from an aggregated and disaggregated perspective. We conclude that more survey research and case studies are needed to advance the literature on fiscal policy in the local government.

Keywords:

• local government
• financial management
• fiscal policy
• fund balance

Notes

¹ General statues cited from Chapter 159 of the North Carolina General Statutes—The Local Government Budget and Fiscal Control Act.

² Information on Cleveland County was obtained from a phone interview with the county’s finance director on December 16, 2013.

FIGURE 4 Fund balance as percentage of expenditures for selected counties from fiscal year 2005 to 2012.

³ Information on Yadkin County was obtained from a telephone interview with the county’s finance director on December 16, 2013.