Does Monitoring Local Government Fiscal Conditions Affect Outcomes? Evidence from Michigan

Source: Thomas Luke Spreen, Caitlin M. Cheek, Public Finance Review, Published online before print October 19, 2015
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From the abstract:
The goal of this article is to assess whether state monitoring and reporting of local government fiscal condition causes improvement in the financial situation of local governments. From 2006 to 2011, Michigan scored the fiscal conditions of each of its local governments based on their performance across nine indicators of fiscal health. Using audited financial data, we construct a panel of several of those financial indicators for a sample of county and municipal governments in Michigan and neighboring states with no similar program. We employ a difference-in-differences methodology to test whether Michigan’s local governments performed better across the selected indicators relative to their peers in neighboring states. The results of the analysis show no significant change in the monitored indicators among Michigan’s local governments relative to local governments in control states. We largely duplicate the baseline results using propensity score matching.