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National Fiscal Policy and Local Government During the Economic Crisis, Working Paper 052 Open Access

Funded by the German Marshall Fund of the United States, this report examines how national government policy, and particularly national grant systems, affected local governments during the “Great Recession” and its aftermath, which in many countries consisted of a period of fiscal consolidation designed to cope with a debt/deficit crisis. We term these two events occurring over a four year period from late 2007 through 2011 “the economic crisis.” Our particular concerns are national government policy towards local governments and whether local government fiscal responses were counter- or pro-cyclical during the period of slow or negative economic growth. In other words, did national government policy promote additional local government spending during the recession (a counter-cyclical policy), or did it encourage reduced subnational government spending (a pro-cyclical policy)? We also examine whether local government fiscal policy was consistent with stated national government policy, and whether and how the imposition of fiscal austerity policy and fiscal consolidation programs at the national level affected local government spending.

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