From the call:

We are seeking papers for our 8th annual conference, to be held July 15-16, 2019, at the Brookings Institution. The Municipal Finance Conference aims to bring together academics, practitioners, and state and local government officials to discuss recent research on municipal finance and economic and fiscal issues affecting state and local governments more broadly. In recent years, paper topics have included changing rules for advance refunding, the impact of local newspaper closures on municipal borrowing costs, an analysis of the Kansas tax reform, pricing and ownership trends in U.S. green bonds, issues in financing public pensions, and changes in the municipal advisor market in the post Dodd-Frank era.

Understanding municipal markets means understanding what influences regional, state and local economic and fiscal conditions, so we are interested in a broad assortment of papers.

• Deadline for proposals is Friday, March 1, 2019.
• We are seeking proposals for a broad variety of topics on any aspect of state and local fiscal policy and finance.
• Papers do not have to be original to this conference. We welcome papers that have been presented elsewhere.
• Please send your proposal or abstract to Haowen Chen (hnchen@brookings.edu).
• Selection decisions will be made by Friday, April 5, and drafts of selected papers will be due by Friday, June 7.

Additional details about the conference can be found on its website – check back for updates.

Russia has been in the news lately… A forthcoming article in Public Finance Review should help us all to cut through the noise and better understand public finances in that country. Alexeev et al. (2018) evaluate the relationship between fiscal decentralization and fiscal discipline in the Russian Federation using a panel for 2005-2013, especially in the context of 2009 public finance reforms. Alexeev et al. (page 3) write that:

“The main goal of this article is to use the data from Russian regions to estimate the link between intraregional fiscal decentralization and regional budget deficits. The important advantage of using Russian regional data is that the country has a relatively large number of regions and most (although not all) of the relevant fiscal data are publicly available. Also, as we show below (the first section and table 1), there is a large variation within the relevant fiscal variables, both across regions and over time.”

With respect to fiscal centralization, the authors also note that (page 10): “Fiscally, Russia is also one of the more centralized federal countries in the world, particularly on the revenue side. All taxes are collected by the federal tax service, which then channels tax revenues into the budgets of the appropriate level of government. By law, taxes in Russia are classified into federal, regional, and municipal depending on what level of government determines the base and the rates, although it is important to note that federal legislation imposes limits on the ability of lower levels of government to modify the base and the rates of “their” taxes. All revenue from regional taxes goes into regional or municipal budgets, but some of the revenue from federal taxes accrues to the budgets of the lower levels of government. The classification of taxes, the rules with respect to rate and base determination by various levels of government, and expenditure responsibilities are contained in Russia’s Tax Code, Budget Code, and certain other federal laws.”

Three major findings stand out in particular. First, expenditure decentralization is positively related to consolidated regional budget balances. Second, those regions with relatively greater levels of transfer dependence for municipalities tend to have greater levels of budget deficits. Finally, the 2009 public finance reform has limited the ability of regional governments to assign tax revenues to their municipalities, which appears to have had a negative impact on consolidated regional budget balances.

Public Finance & Management has issued a call for paper proposals for a symposium themed “Behavioral Public Finance: New Approaches to Old Questions.” The Guest Editors are Salvador Espinosa (San Diego State University), Wie Yusuf (Old Dominion University), and Kenneth Kriz (University of Illinois-Springfield). Attendees of last fall’s ABFM conference might have caught their roundtable on a similar theme. Below is the call.

The “rational” model of decision-making has traditionally been the lens through which public finance decisions and outcomes have been studied. In this model, rational actors evaluate all possible outcomes and make decisions based on the expected utility of the outcomes. Risk or uncertainty is assessed through using objective weights representing the probability of events, producing risk-adjusted measures of potential outcomes.

However, scholars like Tversky and Kahneman (1974), Thaler (1991) have proposed another theoretical framework to understand how individuals make decisions. Behavioral economics stresses that economic actors approach uncertain decisions through the use of heuristics because of the overwhelming complexity of evaluating the outcomes and probabilities of even relatively small problems. In essence, in the behavioral approach the weights used in the decision making process are not objectively determined but rather subjectively determined and are influenced by which heuristic is chosen.

McCaffery and Slemrod (2006) suggested a possible intersection between behavioral economics and public finance. Their proposal was to analyze broad clusters of questions concerning the forms of public finance mechanisms, problems of inter- temporal choice, and models of taxpayer compliance.  While there have been attempts to incorporate behavioral principles to address applied public finance questions (see e.g., Kriz, 2005, 2004; O’Connell and Yusuf, 2011; Yusuf, et.al., 2018 and Brunner, Robbins and Simonsen, 2018) , there is a need for further research demonstrating the application of behavioral economics and finance theories to public finance issues.

Recognizing this need, Public Finance and Management invites scholars to contribute to a symposium issue of the journal. We invite article submissions that explore the many dimensions of public finance behavior, either theoretically or empirically.

Potential topics include (but are not limited to):

• Critical reviews of the pertinent literature;
• Theories and models of decision-making and their applicability to the public finance and management field;
• The effect of heuristics on public finance decisions;
• The impact of biases on support for public spending or taxes, tax compliance issues approached from a behavioral lens; and
• Behavioral approaches to public finance theory, and experimental results assessing public finance theories.

Proposals are due to kkriz4@uis.edu by February 28. Authors will be notified that they will be invited to submit a full manuscript by March 15. Final manuscripts are due August 15, 2019. Reviews and final acceptance will occur through October.

A ranking article of public finance journals including PFM can be found in the Journal of Public Economic Theory, 10 (1), 2008, pp. 55-76.

In addition, authors may choose to present (drafts of) their papers at the 11th Global Conference of the Forum for Economists International in Amsterdam, Netherlands, May 24-27, 2019 and receive comments additional to the peer review. Note that participation in the conference is optional and unrelated to the decision to accept or reject a manuscript for publication in PFM.

The Economics of Governing has published online “A Test of the Institutionally-Induced Equilibrium Hypothesis: On the Limited Fiscal Impact of Two Celebrity Governors” by Roger Congleton and Yang Zhou, both of West Virginia University. The paper looks at the election of Jesse Ventura and Arnold Schwarzenegger and as given away by the title it finds little impact on their state’s expenditures or deficits. From the introduction (footnotes omitted):

Our main interest in this study is the extent to which state level checks and balances tend to minimize the effects of changes in the individuals holding the post of governorship. The usual approach to do so empirically would be to adopt an international perspective and attempt to determine how differences in federal institutions affect a nation’s policies. An enormous body of international and intra-national empirical research supports the contention that institutions matter in the sense that they affect the kinds of policies adopted by a national government. Our approach is the reverse of the normal one in that we hold institutions constant and attempt to determine whether “shocks” in the forms of very unusual governors affect the fiscal policies of the states governed.

The main tool for the causal evidence is a new variant on the synthetic control method. Here is the full abstract:

The governorships of Jesse Ventura of Minnesota and Arnold Schwarzenegger of California provide two natural experiments for testing the institutionally induced stability hypothesis. Both men rose to their governorships through unique career and electoral paths that would reduce the stabilizing effects of partisan commitments and electoral competition, which would tend to increase their impact on public policy. Nonetheless, our evidence suggests that despite their unique backgrounds and paths to office neither governor had a statistically significant impact on their state’s expenditures or deficits.

Assuming one regards Trump as another celebrity executive, there is an interesting discussion to be had as to what can be learned from this study about the current federal government.

I am very pleased that Tima Moldogaziev has joined Public Finance Papers as an author. Tima is an associate professor of public administration and finance at the University of Georgia. He is a prolific scholar with over 30 peer reviewed journal articles and four books to his credit in the last eight years. I’ve previously blogged a paper of his on special districts in the fiscal commons here.

Welcome Tima!

That is the title of a new paper by Francois Facchini (University of Paris) forthcoming in the Atlantic Economic Journal. The argument of the paper is that econometrics is not going to ultimately explain (at least on its own) the size of the public sector, but it also contains a useful summary on the history of thought. Here is the abstract:

The purpose of this paper is to present and assess the literature about the determinants of public spending. Its originality is the adoption of a methodological perspective. Does econometrics allow economists to discover universal constants for public spending or is it only another way of writing the history of public finance? The economic theory of the size of government includes 23 explanations and 78 explanatory variables. The size of government reflects the preferences of citizens (demand model), the power of politicians and bureaucrats to impose their interests against citizens’ interests (supply model) and the constitutional design that governments face in raising revenue. Nonetheless, the great instability of econometric tests shows, all the difficulties of the science of public finance in finding a constant and discovering real causality between these variables. The analytical consequence of this result is the great futility of the search for a general law of the dynamic of public spending. This futility can be interpreted as a consequence of the complexity of political exchange. The size of the state is a multi-causal phenomenon. The prescriptive consequence is that it is not possible to use quantitative analysis to defend a form of “causal manipulationism” and predict the timing of state reforms and a political strategy to reduce the share of public spending in production. Econometrics is only one way of reporting the history of public finances.

This figure is also quite interesting, it shows concepts studied, the number of studies that confront them, and how frequently they seem to conform to theoretical expectations. Political fragmentation is the most commonly accepted hypothesis at 84%, while the base size of the economy as measured by pre-tax income has been the least likely to conform to expectations (40%):