Author ORCID Identifier
Laiyang Ke: https://orcid.org/0000-0001-6624-1841
Benedict Jimenez: https://orcid.org/0000-0002-4184-7713
Document Type
Article
Publication Date
3-12-2024
Abstract
One-shot revenue shocks influence governments’ budget decisions and the provision of public services. However, how governments respond to transitory income remains a theoretical and empirical puzzle. The permanent income hypothesis suggests that governments save revenue windfalls to smooth consumption across time. Alternatively, other theories suggest that windfalls will lead to significant spikes in current government spending. Extant studies on the effects of transitory income have produced mixed results because the revenue sources they examine may not be truly transitory. The case of special and extraordinary gains from uncommon and one-time events allows us to investigate the effects of truly transitory revenues. Taking advantage of the GASB requirement that governments report such gains in their financial statements, this study examines the effects of gains on governmental expenses for a sample of cities across ten years. Using a staggered adoption event study design, we find that transitory gains stimulate spending and that the size of gains matters before one observes the stimulatory effects. These results have substantial implications for budgetary transparency and fiscal sustainability in municipal governments.
DOI
https://doi.org/10.5281/zenodo.12701720
Recommended Citation
Ke, Laiyang, and Benedict S. Jimenez. 2024. “ The Interesting Case of Special and Extraordinary Items: What are They and How do They Influence Municipal Government Finances?” Public Budgeting & Finance 44: 69–89. https://doi.org/10.1111/pbaf.12357
Comments
This is the peer-reviewed version of the following article: The interesting case of special and extraordinary items: What are they and how do they influence municipal government finances? Public Budgeting & Finance 44, 2 p69-89 (2024), which has been published in final form at https://doi.org/10.1111/pbaf.12357.
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