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Budget Volatility and Economic Base Composition in Local Governments  

Author:  Michael R. Overton.; Robert L. Bland.

Source: Volume 43, Number 01, Spring 2022 , pp.1-23(23)

Municipal Finance Journal

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Budget volatility—the difference between expected and actual revenues and expenditures—is a critical component to sustaining a local government’s fiscal health. Although scholars have examined many determinants of budget volatility, less understood is the effect of a local government’s economy—the composition of its economic base—on budget volatility. To fill this gap, this article uses panel data methods to test the impact of a city’s economic base on budget volatility. The results suggest that industrial diversification has no impact on budget stability but that certain industrial clusters do generally promote budget stability.

Keywords: Local government, diversification, clustering, economic development, budget volatility

Affiliations:  1: University of Idaho; 2: University of North Texas.

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