Comparing local finances on an international scale

New research by Professor of Public and Financial Management Gerhard Hammerschmid compares local government finances in 23 countries. The study, “Local Public Finance in Europe”, is a cooperation of the Hertie School and the Bertelsmann Stiftung. The report was edited by Hammerschmid, Rene Geißler of the Bertelsmann Stiftung, and Christian Raffer, Research Associate at the Hertie School.

The report is divided into 22 country chapters, 19 of which are countries in the European Union, plus one chapter on the state of Michigan in the US.

Comparing local finance on an international basis, the researchers focus in particular on the regulation of local budgets by higher-level governments. They examine how regulation creates budget constraints and pressure to consolidate, especially when governments are faced with budget deficits. The authors take a special look at the general and regulatory impacts of financial crisis.

“In contrast to the widespread conviction about local governments’ relevance in public service provision, there is little research about local finance from an international comparative perspective,” the authors write. “This holds true in particular for two foci: the impact of the great financial crisis of 2008/2009 on the state of local public finances and the regulation of municipal budgets by higher-level governments.”

The researchers consider four aspects of regulatory regimes: Fiscal rules, organisation, monitoring and enforcement, in order to understand systematically the mechanisms of national regimes, how they evolve and their underlying conditions. The also discuss the limitations these regimes face, such as overstressing the regulators’ capacity or changes to underlying worldviews, or poor institutional design.

Read the full report on the Bertelsmann Stiftung website.