Fiscal Consolidations in Polish Local Governments in the Period 2008–2016: Course and Causes

English

  • Łukasz Wiktor Olejnik SGH Warsaw School of Economics; National Bank of Poland
Keywords: local government fiscal policy, fiscal consolidation, Polish local government, local political business cycle, Poland

Abstract

The article presents strategies of fiscal consolidations conducted in Poland in cities with powiat rights, and a study of causes behind the decision to conduct such fiscal consolidations. Local governments showing an improvement of their public finances have been distinguished; and based on that, a description of various methods of reduction of expenditures, deficit or debt in Polish local governments has been presented. An analysis of data shows the dominance of consolidations on the revenue side. The study has identified few cases of expenditure cuts, and they mostly included investments, public transport and housing expenditures. Besides the description of data concerning fiscal consolidations, the article also presents a multivariate probit regression model and logistic regression model estimated based on panel data aimed at studying the determinants of conducting financial consolidations in a given local government. The hypotheses that macroeconomic variables and the election cycle have a statistically significant effect on the decision to conduct consolidation have been  positively verified; whereas the hypothesis that other political factors significantly affect the probability of improvement of the financial situation of a local government have been verified negatively.

References

Alesina, A. & Ardagna, S. (2010) Large Changes in Fiscal Policy: Taxes versus Spending. Tax Policy and the Economy, 24(1), pp. 35–68, https://doi.org/10.2139/ssrn.1502862.

Alesina, A. & Ardagna, S. (2013) The Design of Fiscal Adjustments. Tax Policy and the Economy,27(1), pp. 19-68, https://doi.org/10.1086/671243.

Alesina, A.&Perotti R. (1995) The Political Economy of Budget Deficits. Staff Papers (International Monetary Fund), pp.42(1), pp. 1–31, https://doi.org/10.2307/3867338.

Ashworth, J., Geys, B.&Heyndels, B. (2005) Government weakness and local public debt development in Flemish municipalities, International Tax and Public Finance, 12, pp. 395–422, https://doi.org/10.1007/s10797-005-2317-3.

Banaszewska M. (2017) Stabilność polityki fiskalnej w polskich województwach, Research papers of Wrocław University of Economics, 482, pp. 9–16, https://doi.org/10.15611/pn.2017.482.01.

Banaszewska M.&Bischoff I. (2018) Grants-in-aid and the prospect of re-election: The impact of EU funds on mayoral elections in Poland, MAGKS Joint Discussion Papers on Economics no. 22–2018 (Marburg: Philipps-Universität Marburg).

Barrios, S., Langedijk, S.&Pench, L. (2010) EU Fiscal Consolidation after the Financial Crisis Lessons from Past Experiences, European Commission Economic Papers 418 (Brussels: European Commission), https://doi.org/10.2765/42879.

Berry, C. (2008) Piling on: Multilevel Government and the Fiscal Common-Pool, American Journal of Political Science, 52(4), pp. 802–820, https://doi.org/10.2139/ssrn.1144644.

Bessho, S.& Ogawa, H. (2015) Fiscal adjustment in Japanese municipalities, Journal of Comparative Economics, 43(4), pp. 1053–1068, https://doi.org/10.1016/j.jce.2014.10.007.

Bilan, I. & Oprea, F. (2015) An Evaluation of the Economic and Financial Crisis's Impact on Local Budgetary Aggregates: The Romanian Case, Procedia Economics and Finance, 20, pp. 467–477, https://doi.org/10.1016/S2212-5671(15)00098-2.

Bohle, D. & Medve-Bálint, G. (2016) Local government debt and EU funds in the eastern member states: the cases of Hungary and Poland. MAXCAP Working Paper No. 33. (Berlin: Freie Universität Berlin).

Borge, L.-E. (2005) Strong politicians, small deficits: evidence from Norwegian local governments, European Journal of Political Economy, 21(2), pp. 325-344, https://doi.org/10.1016/j.ejpoleco.2004.06.005.

Brender, A. (2003) The effect of fiscal performance on local government election results in Israel: 1989–1998, Journal of Public Economics, 87(9-10), pp. 2187-2205, https://doi.org/10.1016/S0047-2727(02)00045-2.

Buettner, T. & Wildasin, D. (2006) The dynamics of municipal fiscal adjustment, Journal of Public Economics, 90(6-7), pp. 1115–1132, https://doi.org/10.1016/j.jpubeco.2005.09.002.

Cappellari, L.&Jenkins, S. (2003) Multivariate probit regression using simulated maximum likelihood, Stata Journal, 3(3), pp. 278–294.

Castells, A., Esteller-Moré, A. & Vilalta, M. (2004) Full Characterisation of the Political Economy of Fiscal Adjustment: Evidence from Spanish Municipalities, Documents de treball IEB, No. 3/2004 (Barcelona: Institut d'Economia de Barcelona (IEB)).

Chib, S. & Greenberg E. (1998) Analysis of multivariate probit models, Biometrika, 85(2), pp. 347-361, https://doi.org/10.1093/biomet/85.2.347.

Crivelli, E. (2012) Local governments’ fiscal balance and privatization in transition countries, Economics of Transition, 20(4), pp. 677-703, https://doi.org/10.1111/j.1468-0351.2012.00446.x.

Eslava, M. (2011) The Political Economy Of Fiscal Deficits: A Survey, Journal of Economic Surveys, 25(4), pp. 645–673, https://doi.org/10.1111/j.1467-6419.2010.00647.x.

Fernandez-Val, I. (2009) Fixed Effects Estimation of Structural Parameters and Marginal Effects in Panel Probit Models, Journal of Econometrics, 150(1), pp. 71–85, https://doi.org/10.1016/j.jeconom.2009.02.007.

Fiorino, N.&Triacca U. (2003) Coalition governments and fiscal performance in Italy (1950–1992). An impulse response analysis, Societa Italiana di Economia Pubblica. XY Conferenza, Universita di Pavia, 3–4 October 2003.

Foremny, D., Sacchi, A. & Salotti, S. (2017) Decentralization and the duration of fiscal consolidation: shifting the burden across layers of government, Public Choice 171(3–4), pp. 359–387, https://doi.org/10.1007/s11127-017-0441-0.

Gennari, E. & Messina, G. (2014) How sticky are local expenditures in Italy? Assessing the relevance of the flypaper effect through municipal data, International Tax and Public Finance, 21(2), pp. 324–344, https://doi.org/10.1007/s10797-013-9269-9.

Geys, B., Heinemann, F. & Kalb, A. (2010) Voter involvement, fiscal autonomy and public sector efficiency: evidence from German municipalities, European Journal of Political Economy, 26(2), pp. 265–278, https://doi.org/10.1016/j.ejpoleco.2009.11.002.

Hájek, P. & Hájková, V. (2009) Debt analysis of Czech municipalities. Scientific papers of the University of Pardubice. Series D, 14(1), pp. 36–42. OAI: 10195/35629.

Hajivassiliou, V.&Ruud, P. (1994) Classical Estimation Methods for LDV Models Using Simulation. In: Engle, R. & McFadden, D. (eds.):Handbook of Econometrics, Vol. IV. (New Haven: Cowles Foundation, Yale University), pp. 2384–2441, https://doi.org/10.1016/S1573-4412(05)80009-1.

Hopland, A. (2013) Central government control and fiscal adjustment: Norwegian evidence, Economics of Governance, 14(2), pp. 185–203, https://doi.org/10.1007/s10101-013-0124-3.

Innes, D. & Tetlow, G. (2015) Delivering Fiscal Squeeze by Cutting Local Government Spending. Fiscal Studies, 36(3), pp. 303–325, https://doi.org/10.1111/j.1475-5890.2015.12056.

Jaimes, R.(2016) Estimating Fiscal Adjustments at the Local Level in Colombia, MPRA Paper, no. 75507 (Munich: MPRA).

Jankovics, L. (2016) Local Government Finances in Hungary: From the Culprit of Fiscal Slippages to a Source of Stability?, Society and Economy, 38(4), pp. 455–478, https://doi.org/10.1556/204.2016.38.4.2.

Jones, M., Sanguinetti, P. & Tommasi, M. (2000) Politics, institutions, and fiscal performance in a federal system: an analysis of the Argentine provinces, Journal of Development Economics, 61(2), pp. 305–333, https://doi.org/10.1016/S0304-3878(00)00059-6.

Kata, R. (2015) Ryzyko finansowe w kontekście zadłużenia jednostek samorządu terytorialnego w Polsce, Optimum. Studia Ekonomiczne, 76(4), pp. 54–71, https://doi.org/10.15290/ose.2015.04.76.04.

Kickert, W., Randma-Liiv, T. & Savi, R. (2015) Politics of fiscal consolidation in Europe: a comparative analysis, International Review of Administrative Sciences, 81(3), pp. 562-584, https://doi.org/10.1177/0020852314564312.

Krueathep, W. (2013) Municipal Responses to Fiscal Austerity: The Thai Case. International Journal of Public Administration, 36(7), pp. 453–468, https://doi.org/10.1080/01900692.2013.772631.

Kukołowicz P. & Górecki M. (2018) When incumbents can only gain: economic voting in local government elections in Poland, West European Politics, 41(3), pp. 640–659, https://doi.org/10.1080/01402382.2017.1403147.

Langbein, L, Crewson, P.&Brasher, C. (1996) Rethinking ward and at-large elections in cities: Total spending, the number of locations of selected city services and policy types, Public Choice, 88(3-4), pp. 275-293, https://doi.org/10.1007/BF00153234.

Legrenzi, G. (2009) Asymmetric and non-linear adjustments in local fiscal policy. CESifo Working Paper, no. 2250 (Munich: Center for Economic Studies).

Leibrecht, M. & Scharler, J. (2013) When are fiscal adjustments successful? The role of social capital, Applied Economics Letters, 20(18), pp. 1640–1643, https://doi.org/10.1080/13504851.2013.829261.

Liu, C., Moldogaziev, T. & Mikesell, J. (2017) Corruption and State and Local Government Debt Expansion, Public Administration Review, 77(5), pp. 681–690, https://doi.org/10.1111/puar.12711.

Maličká, L. (2017) Determinanty zadlženosti miestnych samospráv Slovenskej republiky, Politická ekonomie, 65(3), pp. 301-315, https://doi.org/10.18267/j.polek.1145.

Moździerz, A. (2016) Spór o koncepcję konsolidacji fiskalnej, Studia ekonomiczne, 273, 193–206.

Muraközy, B. & Telegdy, Á (2016) Political incentives and state subsidy allocation: Evidence from Hungarian municipalities, European Economic Review, 89(C), pp. 324–344, https://doi.org/10.1016/j.euroecorev.2016.07.003.

Nordhaus, W. (1975) The Political Business Cycle, Review of Economic Studies, 42(2), pp. 169–190, https://doi.org/10.2307/2296528.

OECD (2011) Fiscal consolidation: targets, plans and measures, OECD Journal on Budgeting, 11(2), pp. 15–67, https://doi.org/10.1787/16812336.

Peltzman, S. (1992) Voters as Fiscal Conservatives, The Quarterly Journal of Economics, 107(2), pp. 327–361, https://doi.org/10.2307/2118475.

Persson, T.&Tabellini, G. (2002) Political Economics: Explaining Economic Policy (Cambridge: MIT Press).

Poniatowicz, M. (2012) Lokalny stres finansowy, istota i przejawy w polskich warunkach, Annales UMCS sectio H OECONOMIA, 46(3), pp. 38–49.

Poterba, J. & Rueben, K. (1999) State Fiscal Institutions and the U.S. Municipal Bond Market, In: Poterba, J. & Rueben, K. (eds.) Fiscal Institutions and Fiscal Performance (Chicago: University of Chicago Press), pp. 181–208.

Rattsø, J. & Tovmo, P. (2002) Fiscal Discipline and Asymmetric Adjustment of Revenues and Expenditures: Local Government Responses to Shocks in Denmark, Public Finance Review, 30(3), pp. 208–234, https://doi.org/10.1177/109114210203000303.

Rogoff, K. & Sibert, A. (1988) Elections and macroeconomic policy cycles, Review of Economic Studies, 55(1), pp. 1-16, https://doi.org/10.2307/2297526.

Rosenberg, J. (1992) Rationality and the political business cycle: The case of local government, Public Choice, 77(1), pp. 71–81, https://doi.org/10.1007/BF00142917.

Shapley, L. & Shubik, M. (1954) A Method for Evaluating the Distribution of Power in a Committee System, American Political Science Review, 48(3), pp. 787–792, https://doi.org/10.2307/1951053.

Snyder, R. (2001) Scaling Down: The Subnational Comparative Method, Studies in Comparative International Development, 36(1), pp. 93-110, https://doi.org/10.1007/BF02687586.

Solé-Ollé, A. & Sorribas-Navarro, P. (2012) The dynamic adjustment of local government budgets: does Spain behave differently?, Applied Economics, 44(25), pp. 3203–3213, https://doi.org/10.1080/00036846.2011.570723.

Swianiewicz, P.&Łukomska, J. (2015) Local tax policies in the limited autonomy of the revenue collection system in Poland, In: Kim, I., Lotz, J. & Mau N. (eds.) Interaction between local expenditure responsibilities and local tax policy (Copenhagen: Danish Ministry for Economic Affairs and the Interior), pp. 255–280.

Tsai, H. (2018) Municipal financial strategy responses to fiscal austerity: The case of Taiwan, In: Podger A., Tsai-Tsu, S., Wanna J., Chan, H. & Niu, M. (eds.) Budget and financial management reform in the People's Republic of China, Taiwan and Australia (Canberra: ANU Press), pp. 251–275, https://doi.org/10.2307/j.ctt20krz22.18.

Wójtowicz, K. (2014) Udziały w podatkach państwowych a problem stabilności fiskalnej jednostek samorządu terytorialnego w Polsce, Annales UMCS sectio H OECONOMIA, 48(2), pp. 135–143.

Published
2019-01-26
Section
Articles