Analyzing the Fiscal Health of Local Governments in Taiwan: Evidence from Quantile Analysis
This paper develops the fiscal health index of 21 local
governments in Taiwan over the 1984 to 2010 period. A quantile
regression analysis was used to explore the extent that economic
variables, political budget cycles, and legislative checks and balances,
impact different quantiles of fiscal health index for a country over a
sample period of time. Our findings suggest that local governments at
the lower quantile are significantly benefited from political budget
cycles and the increase in central government revenues, while
legislative effective checks and balances and the increase in central
government expenditures have a significantly negative effect on local
fiscal health. When local governments are in the upper tail of the
distribution, legislative checks and balances and growth in
macroeconomics have significant and adverse effects on the fiscal
health of local governments. However, increases in central
government revenues have significant and positive effects on the
health status of local government in Taiwan.
<p>[1] F. Ladd, and J. Yinger, “America’s ailing cities: fiscal health and the
design of urban policy,” Baltimore, MD: John Hopkins University Press,
1989.
[2] T. Clark, and L. Appleton, “Coping in American cities,” In S. Clarke (ed.),
Urban Innovation and Autonomy (31-68). Newbury Park, CA: Sage
Publications, 1989.
[3] S. Berry, “Sizing up State policy innovation research,” Policy Studies
Journal, 1994, vol. 22, pp. 442-456.
[4] W. Lin, and K. Raman, “The housing value-relevance of governmental
accounting information,” Journal of Accounting and Public Policy, 1998,
vol. 17, pp. 91-118
[5] M. Groves, W. Godsey, and M. Shulman, “Evaluating financial condition:
A handbook for local government (3rd ed.),” working paper, no.1531,
2003.
[6] P. Kloha, S. Carlo, and R. Kleine, “Developing and testing a composite
model to predict local fiscal distress,” Public Administration Review,
2005, vol. 65, no. 3, pp. 313-323.
[7] Y. Badu, and S. Li, “Fiscal Stress in Local Government: A Case Study of
the Tri-Cities in the Commonwealth of Virginia,” The Review of Black
Political Economy, 1994, vol. 22, no. 3, pp. 5-17.
[8] K. Brown, “The 10-Point Test of Financial condition: Toward an
Easy-To. Use Assessment Tool for Smaller Cities,” Government Finance
Review, 1993, vol. 9, no. 6, pp. 21-26.
[9] R. Kleine, P. Kloha, and C. Weissert, “Monitoring local government fiscal
health: Michigan’s new 10-point scale of fiscal distress,” Government
Fiscal Review, 2003, vol. 19, no. 3, pp. l69-190.
[10] R. Hendrick, “Assessing and measuring the fiscal health of local
governments: focus on Chicago suburban municipalities,” Urban Affairs
Review, 2004, vol. 40, no. 1, pp. 78–114.
[11] X. Wang, L. Dennis, and Y. S. Tu, ‘‘Measuring financial condition: a
study of U.S. States,’’ Public Budgeting and Finance, 2007, vol. 27, no. 2,
pp.1-21.
[12] W. Krueathep, “Measuring municipal fiscal condition: the application of
U.S.-based measures to the context of Thailand,” International Journal of
Public Administration, 2010, vol. 33, pp.223-239.
[13] J. Martinez-Vazquez, and l. Boex, “Fiscal capacity: an overview of
concepts and measurement issues and their applicability in Russian
federation,” Working paper, 97-3, 1997, Georgia State University.
[14] S. Raju, 2011, “Analyzing the fiscal health of state governments in India:
evidence from the 14 major states,” Public Budgeting and Finance, Fall
2011, pp: 49-72.
[15] S. Hakkio, and M. Rush, “Is the budget deficit “too large”?” Economic
Inquiry, 1991, vol. 29, pp. 429-445.
[16] S. Cohen, M. Doumpos, E. Neofytou, and C. Zopounidis, 2012,
“Assessing financial distress where bankruptcy is not an option: An
alternative approach for local municipalities,” European Journal of
Operational research, 2012, vol. 218, pp. 270-279.
[17] K. Rogoff, and A. Sibert, “Elections and macroeconomic policy cycles,”
Review of Economic Studies, 1988, vol. 55, pp. 1-16.
[18] T. Persson, and G. Tabellini, “Fiscal policy cycles and public expenditure
in developing countries,” Public Choice, 2000, vol. 102, pp. 115-30.
[19] T. Persson, and G. Tabellini, “Constitutional rules and fiscal policy
outcomes,” American Economic Review, 2004, vol. 94, pp. 25-45.
[20] M. Streb, and G. Torrens, “Making rules credible: divided government
and political budget cycles,” Working Paper, Universidad del Cema,
2009.
[21] M. Streb, D. Lema, and G. Torrens, “Checks and balances on political
budget cycles: cross-country evidence,” KYKLOS, 2009, vol. 62, no. 3,
pp. 426-447.
[22] J. Henisz, “The Institutional environment for economic growth,”
Economics and Politics, 2000, vol. 12, no.1, pp. 1-31.
[23] J. Henisz, POLCON 2005 codebook, manuscript, University of
Pennsylvania, 2005.
[24] C. W. J. Granger, and P. Newbold, “Spurious regression in
econometrics,” Journal of Econometrics, 1974, vol. 2, pp. 111-120.
[25] R. Engle, and C. W. J. Granger, “Cointegration and error correction:
representation, estimation, and testing,” Econometrica, 1987, vol. 55, pp.
251-276.
[26] A. Dickey, and W. Fuller, “Likelihood ratio statistics for autoregressive
time series with a unit root,” Econometrica, 1981, vol.49, pp. 1057-1072.
[27] P. Phillips, and P. Perron, “Testing for a unit root in time series
regression,” Biometrika, 1988, vol. 75, pp. 335-346.
[28] D. Kwiatkowski, C. Phillips, P. Schmidt and Y. Shin, “Testing the null
hypothesis of stationarity against the alternative of a unit root,” Journal of
Econometrics, 1992, vol. 1, pp. 159-178.
[29] P. Perron, “The great crash, the oil price shock and the unit root
hypothesis,” Econometrica, 1989, vol. 57, no. 6, pp. 1361-1401.
[30] P. Perron, “Testing for a unit root in a time series with a changing mean,”
Journal of Business Economics and Statistics, 1990, vol. 8, no. 2, pp.
153-162.
[31] E. Zivot, and D.W. K. Andrews, “Further evidence on the great crash, the
oil-price shock, and the unit root hypothesis,” Journal of Business and
Economic Statistics, 1992, vol. 10, pp. 251-270.
[32] R. Koenker, and G. Bassett, “Regression quantile,” Econometrics, 1978,
vol. 46, no. 1, pp. 33-50.
[33] T. Chang, and Y-H Ho, “Tax or spend, what causes what: Taiwan’s
experience,” International Journal of Business and Economics, 2002, vol.
1, no. 2, pp. 157-165.</p>
<p>[1] F. Ladd, and J. Yinger, “America’s ailing cities: fiscal health and the
design of urban policy,” Baltimore, MD: John Hopkins University Press,
1989.
[2] T. Clark, and L. Appleton, “Coping in American cities,” In S. Clarke (ed.),
Urban Innovation and Autonomy (31-68). Newbury Park, CA: Sage
Publications, 1989.
[3] S. Berry, “Sizing up State policy innovation research,” Policy Studies
Journal, 1994, vol. 22, pp. 442-456.
[4] W. Lin, and K. Raman, “The housing value-relevance of governmental
accounting information,” Journal of Accounting and Public Policy, 1998,
vol. 17, pp. 91-118
[5] M. Groves, W. Godsey, and M. Shulman, “Evaluating financial condition:
A handbook for local government (3rd ed.),” working paper, no.1531,
2003.
[6] P. Kloha, S. Carlo, and R. Kleine, “Developing and testing a composite
model to predict local fiscal distress,” Public Administration Review,
2005, vol. 65, no. 3, pp. 313-323.
[7] Y. Badu, and S. Li, “Fiscal Stress in Local Government: A Case Study of
the Tri-Cities in the Commonwealth of Virginia,” The Review of Black
Political Economy, 1994, vol. 22, no. 3, pp. 5-17.
[8] K. Brown, “The 10-Point Test of Financial condition: Toward an
Easy-To. Use Assessment Tool for Smaller Cities,” Government Finance
Review, 1993, vol. 9, no. 6, pp. 21-26.
[9] R. Kleine, P. Kloha, and C. Weissert, “Monitoring local government fiscal
health: Michigan’s new 10-point scale of fiscal distress,” Government
Fiscal Review, 2003, vol. 19, no. 3, pp. l69-190.
[10] R. Hendrick, “Assessing and measuring the fiscal health of local
governments: focus on Chicago suburban municipalities,” Urban Affairs
Review, 2004, vol. 40, no. 1, pp. 78–114.
[11] X. Wang, L. Dennis, and Y. S. Tu, ‘‘Measuring financial condition: a
study of U.S. States,’’ Public Budgeting and Finance, 2007, vol. 27, no. 2,
pp.1-21.
[12] W. Krueathep, “Measuring municipal fiscal condition: the application of
U.S.-based measures to the context of Thailand,” International Journal of
Public Administration, 2010, vol. 33, pp.223-239.
[13] J. Martinez-Vazquez, and l. Boex, “Fiscal capacity: an overview of
concepts and measurement issues and their applicability in Russian
federation,” Working paper, 97-3, 1997, Georgia State University.
[14] S. Raju, 2011, “Analyzing the fiscal health of state governments in India:
evidence from the 14 major states,” Public Budgeting and Finance, Fall
2011, pp: 49-72.
[15] S. Hakkio, and M. Rush, “Is the budget deficit “too large”?” Economic
Inquiry, 1991, vol. 29, pp. 429-445.
[16] S. Cohen, M. Doumpos, E. Neofytou, and C. Zopounidis, 2012,
“Assessing financial distress where bankruptcy is not an option: An
alternative approach for local municipalities,” European Journal of
Operational research, 2012, vol. 218, pp. 270-279.
[17] K. Rogoff, and A. Sibert, “Elections and macroeconomic policy cycles,”
Review of Economic Studies, 1988, vol. 55, pp. 1-16.
[18] T. Persson, and G. Tabellini, “Fiscal policy cycles and public expenditure
in developing countries,” Public Choice, 2000, vol. 102, pp. 115-30.
[19] T. Persson, and G. Tabellini, “Constitutional rules and fiscal policy
outcomes,” American Economic Review, 2004, vol. 94, pp. 25-45.
[20] M. Streb, and G. Torrens, “Making rules credible: divided government
and political budget cycles,” Working Paper, Universidad del Cema,
2009.
[21] M. Streb, D. Lema, and G. Torrens, “Checks and balances on political
budget cycles: cross-country evidence,” KYKLOS, 2009, vol. 62, no. 3,
pp. 426-447.
[22] J. Henisz, “The Institutional environment for economic growth,”
Economics and Politics, 2000, vol. 12, no.1, pp. 1-31.
[23] J. Henisz, POLCON 2005 codebook, manuscript, University of
Pennsylvania, 2005.
[24] C. W. J. Granger, and P. Newbold, “Spurious regression in
econometrics,” Journal of Econometrics, 1974, vol. 2, pp. 111-120.
[25] R. Engle, and C. W. J. Granger, “Cointegration and error correction:
representation, estimation, and testing,” Econometrica, 1987, vol. 55, pp.
251-276.
[26] A. Dickey, and W. Fuller, “Likelihood ratio statistics for autoregressive
time series with a unit root,” Econometrica, 1981, vol.49, pp. 1057-1072.
[27] P. Phillips, and P. Perron, “Testing for a unit root in time series
regression,” Biometrika, 1988, vol. 75, pp. 335-346.
[28] D. Kwiatkowski, C. Phillips, P. Schmidt and Y. Shin, “Testing the null
hypothesis of stationarity against the alternative of a unit root,” Journal of
Econometrics, 1992, vol. 1, pp. 159-178.
[29] P. Perron, “The great crash, the oil price shock and the unit root
hypothesis,” Econometrica, 1989, vol. 57, no. 6, pp. 1361-1401.
[30] P. Perron, “Testing for a unit root in a time series with a changing mean,”
Journal of Business Economics and Statistics, 1990, vol. 8, no. 2, pp.
153-162.
[31] E. Zivot, and D.W. K. Andrews, “Further evidence on the great crash, the
oil-price shock, and the unit root hypothesis,” Journal of Business and
Economic Statistics, 1992, vol. 10, pp. 251-270.
[32] R. Koenker, and G. Bassett, “Regression quantile,” Econometrics, 1978,
vol. 46, no. 1, pp. 33-50.
[33] T. Chang, and Y-H Ho, “Tax or spend, what causes what: Taiwan’s
experience,” International Journal of Business and Economics, 2002, vol.
1, no. 2, pp. 157-165.</p>
@article{"International Journal of Business, Human and Social Sciences:51853", author = "Chiung-Ju Huang and Yuan-Hong Ho", title = "Analyzing the Fiscal Health of Local Governments in Taiwan: Evidence from Quantile Analysis", abstract = "This paper develops the fiscal health index of 21 local
governments in Taiwan over the 1984 to 2010 period. A quantile
regression analysis was used to explore the extent that economic
variables, political budget cycles, and legislative checks and balances,
impact different quantiles of fiscal health index for a country over a
sample period of time. Our findings suggest that local governments at
the lower quantile are significantly benefited from political budget
cycles and the increase in central government revenues, while
legislative effective checks and balances and the increase in central
government expenditures have a significantly negative effect on local
fiscal health. When local governments are in the upper tail of the
distribution, legislative checks and balances and growth in
macroeconomics have significant and adverse effects on the fiscal
health of local governments. However, increases in central
government revenues have significant and positive effects on the
health status of local government in Taiwan.
", keywords = "Fiscal health, political budget cycles, legislative
checks and balances, quantile regression.", volume = "7", number = "7", pages = "1940-5", }
