CSFE Faculty Affiliate Marco Lam has a new study published in Political Economies in the Carolinas under the title “Sticky Expenditures in Local Governments: Evidence from North Carolina Counties.”
The study looks into the spending behavior of North Carolina county governments during the 2005-2014 time-frame. This time period was chosen because the resource allocation changes in response to budgetary shortfalls resulting from the Great Recession provides a unique backdrop to investigate changes in spending behavior.
County-level data was studied because local governments are typically hit hard during periods of financial distress and struggle to maintain expenditure levels in the face of plummeting revenues.
The study finds that for expenditures such as public utilities and transportation systems, county government agents respond similarly to increases and decreases in revenue as corporate agents respond.
For the other governmental activities, such as public safety, human services, economic development, and education the study found a different spending behavior pattern. For instance, average spending on education declined significantly from 2009 to 2010 and by 2014 the average spending on education was still not back up to the 2014 level. This is consistent with the change in average county revenue that declined from 2009 to 2010 and was not back up to the 2008 level by 2014. However, the average spending on public safety never declined over the 2005-2014 period even when average revenues were decreased.
In summary, the study shows government officials shift their spending behaviors and priorities for governmental activities in years when revenue decreases compared to the prior year. As a result, not all governmental activities are impacted the same by a revenue shortfall or decline. In the years following the decline, when the revenues are growing again, these program cuts are not reversed, and the changed spending priorities appear to remain in place.
For the full paper see Lam, M. and D’Angelo, T. (2020) Sticky Expenditures in Local Governments: Evidence from North Carolina Counties. Political Economies in the Carolinas (forthcoming)