The COVID-19 pandemic inflicted a sudden, severe fiscal shock on local governments, forcing them to navigate complex tradeoffs between retrenchment and adaptation strategies. Drawing on the Government Performance Framework, we examine how five dimensions of capacity—financial management, human resources, strategic planning, communication, and IT—influenced municipal response strategies during a period of fiscal distress. Using original survey data from municipalities in Nebraska and Texas and applying Partial Least Squares Structural Equation Modeling (PLS-SEM), we find that capacity shapes crisis response in distinct ways. Local governments with higher administrative capacities (i.e., IT, HR, strategic planning) were better able to implement proactive revenue expansion and adaptation management measures. At the same time, municipalities with stronger financial management capacity were less likely to resort to cutbacks and short-term fixes such as deferring maintenance. These findings offer theoretical contributions for understanding the nuances of local government capacity and response strategies, and practical insights for building resilient local governments. To navigate crises effectively, local government policymakers should strengthen financial health to buffer against retrenchment while fostering administrative capacities to drive adaptative management practices.
Public financial management has developed sophisticated systems for tracking government expenditures but comparatively limited mechanisms for accounting for what governments forgo when allocating scarce public resources. This letter argues that opportunity cost—a foundational principle of economic reasoning—remains insufficiently embedded in public resource allocation. Using federal program evaluation as an illustrative case, I introduce Economics of Evaluation, a framework that treats evaluation as a scarce investment in information whose value depends on improving decision making and public value. When evaluations are conducted primarily to satisfy institutional mandates, their economic cost extends beyond the evaluation budget to include forgone program improvements, resource reallocations, and performance gains that more decision-oriented evidence could have generated. I argue that incorporating opportunity-cost reasoning into public financial management requires moving beyond expenditure accountability toward allocation accountability, and that Economics of Evaluation provides one framework for advancing that shift.
This paper examines the design, implementation, and impact of intergovernmental fiscal transfers for environmental protection and ecological conservation in the People’s Republic of China. It provides a conceptual overview of conditional fiscal transfers, distinguishing between traditional input-based and performance-oriented output-based grants. China’s environmental and ecological transfers constituted 3.9% of total central transfers in 2024. China’s approach—featuring well-structured specific-purpose and performance-oriented grants with clear accountability mechanisms—is compared with limited international experience from countries like Brazil, France, and India. The paper concludes that China’s system represents a significant and relatively advanced experiment in using fiscal incentives to achieve environmental quality targets, granting local autonomy while maintaining results-based accountability. Key limitations include the risk that central oversight may undermine local innovation, and the current absence of incentives for broader green economic transformation.
Fiscal deficit financing has remained a major monetary policy concern for Ghana for a couple of years, which caused macroeconomic instability including high inflation episodes in the history of Ghana’s economy as far back as 1980. This article critically examined the shock effects of fiscal deficit financing-inflation dynamics transmission mechanism in Ghana for 1980 to 2018 period. The theoretical framework adopted for this study is based on the fiscal theory of the price level. The methodology employed for this article was the structural vector autoregression. The study found that monetary expansion contributed 26.0% to inflation variability, whereas monetization contributed 24.0%. Similarly, the article suggested that external financing contributed 6.1% to inflation, whereas domestic financing of government fiscal budget posed a significant inflation risk. The article recommended that prudent fiscal policies should be implemented by authorities in order to ensure debt sustainability and price stability as well.
This special issue advances the literature by examining the theory and practice of decision‑making in public finance and management during governance reforms, fiscal stress, and uncertainty. The four articles provide in‑depth empirical and comparative analyses in Slovakia, the United States, and Hungary, offering practical insights for policymakers and public managers confronting fiscal challenges. Collectively, the manuscripts address four interrelated themes: (a) decision‑making in public and banking sectors under conditions of fiscal stress; (b) comparative approaches to monitoring municipal fiscal health; (c) the dynamics of governance reforms in diverse institutional and national contexts; and (d) the impact of digital technologies on expenditures, social cohesion, innovation capacity, and competitiveness in settlements and regions. By integrating theoretical frameworks with applied research, this special issue enhances understanding of how the public and banking sectors interpret and respond to fiscal stress, while offering evidence‑based guidance for strengthening resilience, accountability, and long‑term fiscal sustainability. Looking forward, comparative research and policy experimentation will be essential to deepen insights into wise decision‑making under uncertainty.
The purpose of this paper is to provide a comprehensive analysis of decision-making in local governments during municipal bankruptcy. This study analyzes 12 municipalities that went through Chapter 9 from 2008 to 2025 to evaluate decision-making in local governments during municipal bankruptcy. This paper uses the multi-case study approach to test the Taxonomy of financial and budgeting practices during fiscal emergency and bankruptcy in Chester, PA; Fairfield, AL; Perla, AR; Detroit, MI; San Bernardino, CA; Stockton, CA; Jefferson County, AL; Central Falls, RI; Prichard, AL; Westfall Township, PA; Vallejo, CA; and Gould, AR. This study provides recommendations to fiscally struggling municipalities on how to exit a fiscal stress situation quickly and efficiently. The paper is intended as a resource for researchers, practitioners, and policymakers, focusing on financial health and fiscal stress in local governments.
This paper examines whether municipal bond call decisions are influenced by electoral cycles. Using 562,204 bond-month observations from 513 U.S. cities from 2005 to 2021, matched with mayoral election data, I find that bond call probability declines significantly during election months. Contrary to expectations, the effect is concentrated in open-seat elections where the incumbent is not seeking re-election, rather than in incumbent re-election races. Call probability decreases by 1.2 to 2.7% points during open-seat election months—a 20% to 45 reduction relative to the baseline call rate—while incumbent re-election months show no significant change. These results are robust to the inclusion of city fixed effects, city-by-year fixed effects, and year-month fixed effects. The findings suggest that transition uncertainty or lame-duck dynamics, rather than incumbent strategic behavior, drive election-related disruptions in municipal debt management.
Many countries have increased their commitments to meeting the goals of the Paris Agreement and the European Green Budgeting Reference Framework (GBRF) by improving their green budgeting. Based on a review of budgetary documents across the 27 EU Member countries, this study utilizes the methodology of coding countries’ green budgeting regulations and environmental practices based on the GBRF. This study found similarities in the practices pursued in EU countries: (a) the country’s political conditions strongly influence the green budgeting process in all countries, (b) all countries have made significant progress in green budgeting since 2000, (c) the green rating system requires an abundance of data and detailed information that cannot be generated within the “traditional” institutional budget structure. We found that the main challenges for applying green budgeting include a lack of a modern performance budgeting framework, a methodology for assessing environmental impacts, and relevant expertise.
This study examines the social and economic impacts of digital and “smart” settlement development in Hungary, focusing on the implementation of the European Union’s digital strategies within the framework of national programs such as the Digital Wellbeing Program and the Digital Settlement Program By analyzing four Hungarian case studies—Nagypáli, Ceglédbercel, Tamási, and the Northern Hegyháti Micro-Regional Union—the paper explores how digital technologies contribute to social cohesion, innovation capacity, and regional competitiveness. The findings indicate that the successful application of digitalization depends largely on community participation, municipal capacity, and institutional stability. Financial analysis reveals that while digitalization initially increases local expenditures, it enhances long-term fiscal efficiency through cost reduction and improved service delivery. The study concludes that the sustainability of Hungary’s digital settlement initiatives lies in the integration of technological modernization, social innovation, and regional cooperation, fostering both social renewal and fiscal resilience but with certain specificities which are connected to the nature of Hungary-EU relations.
We find the emergency lending program introduced on March 12, 2023, called the Bank Term Funding Program (BTFP) coincided with a statistically significant increase in the risk-premium on Fed funds loans relative to the shortest-term T-bills. We find that the risk-premium on Fed funds loans less 28-day T-bills increased by between 39 to 56 basis points in the wake of the Silicon Valley Bank and Signature Bank runs. This led to a stealth loosening of monetary conditions without a Fed funds rate cut in part due to the incentives created by the BTFP to have banks hoard Treasuries and other eligible collateral.
This research presents theoretical–analytical research focused on the issue of municipal financial health in Slovakia. Using a literature review, we identify indicators of municipal financial health across various applied methodologies. On a sample of eight regional urban centers, the paper analyzes and compares two well-established methodologies in Slovakia for assessing financial health – the methodology of the non-governmental organization INEKO, which regularly assesses and publishes the results of financial health assessments for all municipalities in Slovakia, and the methodology published by Tkáčová and Konečný, compiled based on expert studies. The resulting financial health indicator for the monitored municipalities, using both methodologies, is based exclusively on financial sub-indicators specific to each methodology. Differences in evaluation results obtained using different methodologies suggest a need for adjustments to the methodology for monitoring municipal financial health, including the incorporation of non-financial indicators such as sociodemographic and managerial aspects of municipal finances.
Participation in public budgeting has long been recognized as a means to enhance transparency, improve performance, and build trust in governance. However, significant barriers such as the complexity of financial information can limit meaningful engagement. This paper addresses these challenges by introducing a “Color of Money” taxonomy designed to simplify budgetary concepts and foster informed decision making. In addition, we describe the implementation of a workshop-based initiative—called a “finance academy”—which was created by the finance leadership of a research-intensive public university. With the goal of fostering collaboration and trust, the finance academy aimed to educate senior leaders and fiscal staff on key budgetary issues faced by the university. While these efforts are especially timely given the mounting fiscal pressures facing higher education, they are more broadly applicable to public and nonprofit organizations of various sizes and complexities. Ultimately, we argue that demystifying financial processes and investing in the education of various institutional actors can enhance transparency, build institutional trust, and support long-term financial sustainability.
State governments levy special taxes on many products and services to generate public revenue, but until recently, none have assessed, or even considered, an ad valorem excise tax on the sale of firearms. And while some research has examined the potential revenue effects of raising the firearms tax at the federal level, no economic analysis has investigated the possible state revenues that could be generated by taxes on guns. The present note addresses this gap in the literature. We derive a revenue-maximizing excise tax rate on guns for each state and calculate that it would increase tax revenues by approximately $1.3 billion annually across all states. Recognizing that the revenue-maximizing rate may be politically infeasible, however, we also estimate the potential state revenue from taxing firearms at rates similar to those assessed on other goods. The majority of states would benefit most by taxing guns at rates comparable to those on cigarettes, though some states would gain more by taxing firearms at the rates they currently levy on gasoline, sports betting, vaping, cannabis, or lodging. JEL codes: H71, L64.
African countries have undertaken various reforms that have significantly changed their governance architecture to ensure good public procurement systems and practices, which are a prerequisite for effective public investment and economic growth. However, they continue to face public finance management challenges as the citizenry continue demanding transparency, accountability, and improved efficiency in managing public finances. This study analyses the status and impact of public procurement systems and practices on economic growth in Africa. It applies statistical approaches on data from the Africa Integrity Indicators Surveys, to examine the status of public procurement systems and practices from 2014 to 2023 based on identified indicators from the surveys. Then it assesses their impact on economic growth using an extended Mankiw et al.’s (1992) version of the Solow model approach. The results show that most of the countries performed relatively poorly over the study period, signifying the prevalence of weak public procurement systems and practices in Africa. They also show that public procurement systems and practices have had a negative impact on economic growth, with the results being more pronounced in natural resource-poor countries. Signifying the need for strong and effective institutions and legal frameworks for public procurement and anti-corruption systems, processes, and practices.
This paper evaluates the operationalization of climate budgeting across four global cities using a comparative framework grounded in three practitioner-relevant criteria: climate goal alignment, governance integration, and fiscal transparency. Drawing on best practices outlined by C40 Cities, International City/County Management Association, and Government Finance Officers Association, the study highlights how cities integrate climate considerations into their core financial processes. The findings show that climate budgeting is most effective when treated not as an environmental add-on, but as a reform of public financial management. The paper concludes by emphasizing the need for practical, accessible evaluation tools that can be used to translate climate goals into actionable fiscal strategies.
This paper estimates the effect of racino legalization with earmarked revenues for K-12 education on school district finances. Using district-level data from 1999 to 2019 and a staggered difference-in-differences design, we find that legalization increases total per-pupil revenue by about 6.5%, driven by gains in state aid and local revenue, with no change in federal funding. Expenditure increases are concentrated in capital outlays, which rise nearly 19%, while current spending grows modestly. Event-study estimates show no pre-treatment trends and persistent post-treatment gains. The results are robust to alternative control groups, additional controls, and exclusion of large districts, suggesting that racino earmarks provide a sustained boost to district resources, particularly for long-term investments. JEL-Codes: H71, H75, I22, L83
Purpose: To encourage countries to recognise that effective public financial management and internal control (PFM/IC) depends on a compatible managerial organisation. That may therefore require managerial reform.Countries seeking to improve their PFM/IC arrangements tend to concentrate only on the technicalities of the reform. They are good at introducing the required laws and regulations, but less good at the practical implementation of those laws and regulations. The managerial implications are often not considered. Consequently, the potential benefits of the reform are not achieved. The article examines the challenges countries face in enhancing the practical quality of their PFM/IC arrangements. It argues that to treat PFM/IC as simply a technical financial reform is mistaken. The reform has significant managerial, parliamentary, and governance implications requiring changes to traditional managerial and governance structures. The managerial changes require a shift from a hierarchical (i.e. top top-down decision-making) management model that focuses simply on budgetary and financial controls to a proactive managerial model focused on delivering objective and obtaining value for money. The idea of ‘control’ should extend beyond financial controls to include those controls necessary to achieve objectives and improve performance. The critical managerial changes require delegating much operational decision-making from political to civil or local government officials along with the development of corresponding managerial accountability arrangements. This affects the relationships between politicians and officials, as well as between central and line ministries. Good corporate governance is fundamental to a well-managed and effective public organisation. This depends on effective political and managerial (official) leadership, transparency, and accountability.
Tax and expenditure limitations (TELs) are recognized as a financial institution that restricts the fiscal policy choices made by government officials. However, the impact of state-imposed TELs on municipal financial condition lacks a conclusive stance in existing literature. This paper empirically investigates the impact of this institutional factor on municipal financial condition, measured by cash, budget, and long-term solvency indicators. Analyzing the government-wide financial data from major American cities between fiscal years 2007 and 2016, the panel two-ways fixed-effects regressions and dynamic panel generalized method of moments estimations reveal a negative and statistically significant relationship between TELs stringency and indicators of municipal long-term solvency.
This article examines how fiscal stress shaped decision-making processes in the City of East Cleveland, Ohio, one of the most persistently distressed municipalities in the United States. Drawing on theories of bounded rationality, institutional failure, and austerity urbanism, it explores why decades of oversight and recovery planning have failed to restore fiscal stability. Using qualitative analysis of audit reports, public records, and media coverage, the study reveals how limited administrative capacity, political instability, and corruption constrain local governments’ ability to implement recovery plans, even under state supervision. East Cleveland’s experience challenges staged models of municipal recovery that assume a gradual transition from austerity to pragmatic municipalism. Instead, it illustrates how small, structurally disadvantaged cities can become trapped in perpetual fiscal emergency, where procedural oversight substitutes for effective governance. After decades in fiscal emergency, East Cleveland remained without consolidation or receivership until recent state action in 2025. The case contributes to the literature on emergency financial management and institutional theory by demonstrating that the most instructive lessons may come not from best practices, but from persistent failures. It highlights what not to do when navigating fiscal stress.
This study investigates redistributive spending in China’s governance system, focusing on fiscal decentralization, interjurisdictional competition, and land finance revenue. Using multilevel modeling of data from 283 prefectural cities and 2,862 county-level jurisdictions, it finds that interjurisdictional competition prioritizes developmental spending over redistributive services. No significant relationship is observed between fiscal capacity—measured by tax revenues or intergovernmental transfers—and redistributive expenditures. However, higher land finance revenues are positively linked to increased redistributive spending. The study attributes this development-oriented strategy to the cadre promotion system, where local officials advance their careers by achieving policy goals through competition for economic investments. By integrating land finance into the analysis of redistributive spending, this research highlights its implications for equity and sustainability. It underscores the urgent need for fiscal and social policy reforms to balance developmental priorities with equitable social welfare provision.
