Abstract
This monograph supplements traditional budgeting texts. It introduces the concepts of complexity and dynamic capacities as lenses to examine the local government budget process in a dynamic general equilibrium framework. It adds to conventional budget theory analysis by adding concepts such as fiscal sustainability, complexity analysis, a systems framework, and governance variables. It also explicitly introduces local government debt and economic development policies as budgetary variables. It uses these to analyze the potentially complex interactions of many variables on the revenue, expenditure, and debt decisions of a local jurisdiction. This framework enables the analysis of many interdependencies of exogenous variables in a complex systems framework and helps to identify some non-obvious relationships among those variables and the budget.
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Notes
- 1.
- 2.
While many of the institutional structures used in the model may be unique to the United States, the theory is generalizable to local governments outside of the United States, assuming they have independent budget authority.
- 3.
For a recent example of complex systems and public policy recommendations, see Fowler et al. (2019).
- 4.
In Cleveland (1994, 2).
- 5.
Cleveland, 2.
- 6.
- 7.
Dynamic capability and dynamic capacity are used as synonyms in this monograph.
- 8.
Interestingly, while this report discusses revenues, expenditures, and debt, it ignores economic development as an important variable.
- 9.
This monograph explicitly expands the idea of good governance beyond a lack of corruption.
- 10.
- 11.
Chapter 7 expands the concept of the facilitative state in which feedback loops will be analyzed.
- 12.
The Tiebout model argues that under a specific set of assumptions, individuals will choose a jurisdiction that best matches their preferences for local public goods. If there are enough communities for individuals to choose from, the individual’s choice of community will lead to an official market outcome. This is sometimes referred to as voting with your feet.
- 13.
These terms will be used interchangeably in this piece.
- 14.
Piening (2013) reviews 16 studies that use parts of dynamic capability analysis in the public or non-profit sector. None of these studies use complex system analysis in their discussion.
- 15.
For other examples of dynamic capabilities, see Teece (2007), Birkinshaw et al. (2016) and Teece et al. (2016). For contradictory evidence see Fainshmidt et al. (2019) which argues that dynamic capabilities are not important in unstable and resource poor environments but are important in resource poor but stable environments.
- 16.
The Hirschman model, originally developed to explain private sector behavior, argues that individuals have three choices if they are unhappy with the direction that the organization is taking: exit, voice, or loyalty. In the context of this monograph, it implies that over time, the jurisdiction’s preferences and the individuals will be consistent.
- 17.
These are different from intergovernmental grants, which are direct fiscal flows, and which add to revenues or offset expenditures.
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Chapman, J. (2022). The Local Budget as a Complex System: Overview, Concepts, and Definitions. In: The Local Budget as a Complex System. Palgrave Studies in Public Debt, Spending, and Revenue. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-94903-7_1
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