When Push Comes to Shove: The Effect of Economic Crisis on the Spending of Government Savings

ABSTRACT

This study explores whether and how an economic crisis affects the spending of government savings by focusing on its political-economic benefit. Despite a great deal of discussion about the government’s tendency toward more spending, relatively few studies have attempted to identify the conditions that can reverse the tendency. Using data from 254 California cities during 1996–2009, this study finds a regular U-shape relationship between unemployment rates and government savings. Savings decrease until the unemployment rate reaches almost double digits (9.9%) and begin to recover after this point. The results suggest that an economic crisis curbs the spending tendency by modifying the incentives of legislators. This study contributes to public administration research by explaining local government savings and its delayed responses to a crisis from a political-economic perspective.

KEYWORDS:

• Local government
• savings
• spending tendency
• economic crisis
• government response

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Moody’s Investors Service, Mar 2004, The Six Critical Components of Strong Municipal Management: Managerial Methods to Promote Credit Enhancement, retrieved Jul 12, 2017; Standard & Poor’s, Jul 26, 2010, Top 10 Management Characteristics of Highly Rated Credits in U.S. Public Finance, https://www.ncsl.org/Portals/1/Documents/fiscal/Fiscal_meetings/Standard_and_Poors_Top_10_Management_Characteristics_of_Highly_Rated_Credits_in_US_Public_Finance_31202.pdf, retrieved Jul 12, 2017.

2. National Bureau of Economic Research (NBER), “US Business Cycle Expansions and Contractions,” www.nber.org/cycles/cyclesmain.html, accessed Aug 5, 2019.

3. The Great Recession ended in June 2009. NBER, “US Business Cycle Expansions and Contractions,” www.nber.org/cycles/cyclesmain.html, accessed Aug 5, 2019.

4. Results are available upon request.