The uneven impact of macro-economic shocks on the heterogeneity of local government fiscal standings

The state-state of the heterogeneity of fiscal and tax autonomy across local authorities has attracted significant attention and higher self-financing power has been associated with both more articulate local politics, but also higher degrees of autonomy from central government handouts. What is less explored are the implications of the one-size-fits-all country-level responses to shocks (i.e., Covid-19 related public safety measures) on the steady-state of the heterogeneity of fiscal and tax autonomy across types of local authorities (communes, towns, municipalities), and regions (counties, and development regions). The goal of this research is to explore the extent to which indiscriminate policy measures produce distributed fiscal/tax autonomy outcomes across types of local governments, and if yes, to evaluate the extent to which they are significant enough to produce a shift in the steady-state, or are only seasonal in nature. For this, we created a database of budget executions of the 3,227 Romanian local authorities, for the period 2017-2021. The level of fiscal and tax autonomy of each local government was calculated by averaging the corresponding total revenue/own revenue coefficients for the three fiscal years prior to COVID measures being adopted. Similarly, the fiscal/and tax autonomy coefficient for the COVID measure periods were estimated by averaging for each local government the total revenue/own revenue ratio for fiscal years 2020 and 2021. To estimate the non-linearity effects of macro-policy shock effects on local government fiscal/tax autonomy we applied non-parametric quantile regressions. We found the effect of one-size-fits-all country-level policy responses to be higher for local governments in the higher quantiles of the fiscal/tax autonomy scale. In conclusion, one-size-fits-all country-level policy responses can be associated with lower fiscal/tax autonomy in the highest deciles, which points to a lower overall local government fiscal/tax autonomy level in the country.