Municipal Response to Fiscal and Governance Reforms: Effects of Stricter Debt Limits across Jurisdictions

ABSTRACT

The effectiveness of fiscal rules in limiting governmental indebtedness and expenditures has mixed results. This inconclusiveness may suggest debt-limit effects on fiscal outcomes may be moderated by other factors. Although literature has addressed the moderating effects government size has on fiscal outcomes, scarce research has done so with the type of jurisdictions making up a unit of government. Consequently, this study tests whether the type (e.g., urban and rural vs. urban) of administrative jurisdictions moderates the effect of debt limits on municipal debt and spending. Results confirm that municipalities with different types of jurisdictions increase both level of indebtedness and investment expenditure, despite a stricter debt limit being in place.

KEYWORDS:

• Decentralization
• governance regimes
• debt limits
• municipal finances
• type of jurisdictions