Does Fiscal Monitoring Make Better Governments? Evidence from US Municipalities

58 Pages Posted: 6 May 2020

Date Written: April 22, 2020

Abstract

I study the effect of state fiscal monitoring on municipal governance. I focus on governance outcomes related to financial reporting quality, local corruption, political entrenchment, and the financial soundness of municipalities. I exploit the staggered adoption of fiscal monitoring policies, which entail a regular review of municipal financial reporting for signs of fiscal distress. I find that the introduction of monitoring policies is associated with an increase in proxies for reporting quality, a decrease in corruption convictions, and a reduced likelihood of reelection of incumbent politicians. Consistent with the intended purpose of state monitoring, I find evidence consistent with the financial health of municipalities improving following the initiation of state monitoring, as measured with financial statement-based ratios. Collectively, my results are consistent with state fiscal monitoring improving several important aspects of municipal governance.

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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