While complaints from public entities about the policy challenges and harms incident to fiscal uncertainty attributable to budget volatility emerge on an almost annual basis, factors that inform budget volatility remain understudied. Moreover, the particular role that a public entity's taxing autonomy might play remains especially obscure in the empirical literature. However, a recent paper, Does Taxing Authority Help School Districts in Managing Revenue Volatility?, by Laiyang Ke (Ark. St. Univ.--Poli Sci), makes a helpful contribution.
The paper defines taxing autonomy in terms of the degree to which a subnational government (here, public school districts) controls their tax revenues. "Budget volatility" is understood as a function of a school district's "fluctuations and uncertainty in revenue streams and expenditure patterns." Notably, both concepts have particular traction in the US public school district context. First, school districts vary in terms of their taxing autonomy. Second, "previous research has shown that state and local government revenue volatility could lead to expenditure volatility, and uncertain spending fluctuations in school districts may impair education outcomes."
One of the paper's key contributions includes its proposed measure of school district taxing autonomy which draws from school district financial data from the 1998/1999 to 2018/2019 school years. The paper's two-pronged empirical execution features a correlated random effects model as well as D-I-D estimations. The paper's findings emphasize that "school districts with a higher degree of tax autonomy—specifically, those able to change tax rates—experience less current expenditure volatility than districts with lower degrees of tax autonomy." The abstract follows.
"This study examines the impact of tax autonomy on school district expenditure volatility in the U.S., where school districts differ in their ability to levy and adjust taxes, with some having full taxing authority and others relying on fixed appropriations or lacking control over tax rates. This research introduces a comprehensive index to measure taxing autonomy across districts and develops an ordinal classification based on this framework. Using finance data from 1998/1999 to 2018/2019 and difference-in-differences, the study investigates whether districts with higher tax autonomy experience lower expenditure volatility compared to those with limited or no tax authority. The findings reveal that districts with greater tax autonomy, particularly those able to adjust tax rates, exhibit less volatility in current expenditures. Additionally, during the Great Recession, districts with higher autonomy faced smaller cuts in current expenditures by increasing tax revenues, which helped protect educational inputs like pupil-teacher ratios."
Comments