Does Fiscal Monitoring Make Better Governments? Evidence from US Municipalities

73 Pages Posted: 6 May 2020 Last revised: 8 Jan 2024

Date Written: April 22, 2020

Abstract

This paper examines the effect of state-level monitoring on municipal governance, focusing on outcomes in financial reporting quality, local corruption, political entrenchment, and municipal financial soundness. I exploit the staggered adoption of fiscal monitoring policies that entail a regular review of municipal financial reports for signs of fiscal distress. I find that introducing these monitoring policies is associated with an increase in the proxies for reporting quality, a decrease in the number of corruption convictions, and a reduction in re-election likelihood for incumbent politicians. Consistent with the purpose of the policies, my evidence shows that fiscal health ratios of municipalities improve after initiating state monitoring. Collectively, my results are consistent with state fiscal monitoring improving several important aspects of municipal governance.

Keywords: Local governments, Governance, Monitoring, Stewardship, Financial reports

JEL Classification: G18, G38, H1, H11, H7, H83, M4

Suggested Citation

Nakhmurina, Anya, Does Fiscal Monitoring Make Better Governments? Evidence from US Municipalities (April 22, 2020). Available at SSRN: https://ssrn.com/abstract=3293340 or http://dx.doi.org/10.2139/ssrn.3293340

Anya Nakhmurina (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
New Haven, CT 06511
United States

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