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KAREN LEE SHELLEY, University of Massachusetts Amherst


One of the persistent questions in public finance concerns the financial stability of American cities. "Fiscal stress," which results from failure to align revenues and expenditures, has become an increasingly common characteristic of cities and has prompted the consideration of significant policy changes by state and federal governments. Without a more complete understanding of the causes and institutional relationships which contribute to this condition, the formulation of effective programs to deal with urban solvency will most likely be fruitless. It is the purpose of this study to identify some of the factors related to fiscal stress and provide some insights which will make effective policy development possible. In this project, cities are seen as discrete units with given budgetary powers and expenditure pressures. Fiscal stress results when there is a deficit between revenues and expenditures. There are two sets of linkages through which economic, social and demographic changes are translated into financial choices. These linkages are the political and the financial systems. The principal goal of this research was to examine the responsiveness of the financial system to change. The hypothesis was that fiscally-stressed cities would have significantly different elasticities of revenues and expenditures with respect to city size and resident income than would nonfiscally-stressed cities. Regression was used to estimate the elasticities and the Chow test was used to test the hypothesis that the two sets of elasticities were significantly different. The data base included the revenues, expenditures, population and per capita income figures for 37 of the largest U.S. cities from 1961 to 1978. The hypothesis was rejected; there was insufficient evidence of any significant differences between fiscally-stressed and nonfiscally-stressed cities. The findings of this research suggest that fiscal stress is not a crisis, nor is it unique, and that fiscal stress is primarily a political concern, rather than a financial or economic problem.

Subject Area


Recommended Citation

SHELLEY, KAREN LEE, "FISCAL STRESS IN AMERICAN CITIES" (1982). Doctoral Dissertations Available from Proquest. AAI8219848.