Governmental Financial Resilience: Volume 27

Cover of Governmental Financial Resilience

International Perspectives on How Local Governments Face Austerity


Table of contents

(15 chapters)

Governments are no strangers to dealing with crises. On the contrary, a central role of any government is to absorb, navigate and mitigate them. However, crises themselves are unpredictable and represent a significant challenge to governments at both the national and local level. Despite such uncertainty, studying how governments in different countries respond to crises offers a great opportunity to learn from the past and to understand the nature of resilience in the face of significant shocks and disruption.

This book charts how local governments in 11 countries, covering Europe, the United States, South America and Australia, responded to the recent crises and austerity period by shedding new light on the role of contextual- and policy-related conditions as well as the internal capacities and conditions that may influence responses and, ultimately, performance.

This chapter sets the scene for the book, by highlighting the relevance of examining financial crises and austerity and the ways in which governments, and more specifically, local governments, are facing the related shocks. In doing so, it proposes a preliminary framework for exploring governmental financial resilience at the local level. In such a framework, financial resilience is seen as the dynamic combination of internal and external dimensions, including the external environment, financial shocks, vulnerability, anticipatory capacity and coping capacity.


Unfolding almost a decade ago, the global financial crisis still affects governments all over the world. Austria has been hit only moderately, showing one of the lowest debt and unemployment levels in the European Union throughout the crisis years. However, the crisis’ aftermath affected the financial situation of Austrian local governments significantly. Although they are self-administered and exert high political and functional autonomy, local governments rely heavily on shared tax revenues with the federal level. These shared revenues as well as local governments’ own tax revenues declined, mirroring the economic turmoil following the financial crisis. This chapter aims to explore how Austrian local governments responded to these challenges. It does so by investigating the contextual conditions as well as internal capacities through the lens of financial resilience. All four cases included in the analysis highlighted that institutional conditions and general trends, e.g. tasks devolved from upper levels of government without sufficient compensation, limit their ability to cope with financial shocks. In this context, different patterns of financial resilience can be observed. While two cases initially showed low anticipatory and coping capacities, awareness of decision-makers resulted in building internal capacities and in making necessary changes early or as a response to the shock. The other two, however, seem to rest on their laurels of strong capacities in the past, and to rely mainly on their buffering capacities in reacting to shocks, thus increasing their vulnerability in the future.


Australia notably was one of the few developed nations to avoid a technical recession subsequent to the Global Financial Crisis (GFC). However, the fact that the nation escaped a technical recession doesn’t mean that citizens and local governments were not subject to some of the measures associated with post-GFC austerity. In particular, intergovernmental grants – an important source of revenue for Australian local governments – were frozen by the federal government seeking to mitigate large deficits over the forward estimates. This chapter compares and contrasts the budgetary outcomes for the local governments of Australia’s two most populous states – New South Wales and Victoria. We find that the disparate regulatory controls in the two municipal jurisdictions were strongly associated with the budgetary outcomes of the individual municipalities: In particular, we present evidence which suggests that taxation limitations and lax investment guidelines in New South Wales can be associated with relatively inferior budgetary positions and higher budgetary volatility. By way of contrast, Victorian councils had the flexibility to vary rates of taxation to the changing conditions and largely avoided investment losses associated with the financial failure of Lehman Brothers. In New South Wales the regulatory response to deteriorating municipal budgets (subsequent to the GFC) has been to execute a radical programme of forced amalgamations. Somewhat ironically, the Victorian state government has recently imposed taxation limitations on its municipalities. In summary, this chapter demonstrates the saliency of regulatory constraints on municipal resilience, in the context of post-GFC economic challenges.


This chapter analyses the financial resilience pattern presented by four Brazilian municipalities at the beginning of a serious revenue downturn, which was initiated at the central government as a combination of economic and political crises. The crisis occurred during an on-going public financial management reform and attempts to imbricate IPSAS-oriented accrual-accounting policies in a dominant cash-based budgeting culture. Thus, contrasting those patterns with other democracies depicted in this book, we aim to contribute to the comparative literature on financial resilience under austerity periods. We interviewed secretaries of finance, department directors and accountants of each city hall and businessmen from the four municipalities. Cases were selected among 100,000-350,000 inhabitants’ municipalities from one of the three most industrialised brazilian states, varying the cases according to their mean and volatility budgetary surplus over the 10 years before the beginning of the analysed crises. All cases presented no anticipatory capacity or long-term strategic planning. Their usual responses are short-term oriented, such as supplier payments postponement, increasing tax collection or cutting expenditures, rather than based on their weak transformative capacities. Despite the fatalistic and very ineffective reactive behaviours observed in two cases, a proactive mayor, supported by consulting firms, enhanced the responses effectiveness of the two remaining cases. Hence, mayor leadership might be a fruitful feature to be investigated by future studies.


In the aftermath of the financial crisis, English local government faced a period of significant budget reduction and uncertainty. Austerity measures were effectively rolled out over several budget iterations, resulting in a 37% real-term reduction in core central government funding, equivalent to a 25% reduction in income/spending power (including council tax) between 2010 and 2011 and 2015 and 2016. At the same time, changes in government policy in a range of areas between 2011 and 2012 and 2015 and 2016 created 164 new burdens on local government, with an estimated value of £11.5 billion, many of which were unfunded. All of this during a period when local government was being encouraged to freeze council tax and when natural pressure on locally collected taxation and services was increasing due to the economic recession.

This chapter reviews the responses of four English local governments to the austerity period triggered by the onset of the global financial crisis in 2007. For the English councils the results develop into two main themes. Firstly, there appeared to be a common set of anticipatory and coping capacities employed both in the lead up to the funding cuts from 2010 onwards and in the way councils subsequently dealt with aspects of the crisis. Secondly, despite this commonality, the specific and local contexts experienced by each council, both internally and externally, determined their overall path to dealing with austerity. These two paths were self-regulation and constrained adaption.


French municipalities are in charge of a large number of local public services and benefit from a good, even if decreasing, financial autonomy. They have been until recently and despite the 2008 crisis, in a good financial situation supported by stable tax revenues and protective national policies. But they are now weakened by strong cuts in their main operating grant operated from 2015.

Through a case study, this chapter attempts to better understand French municipalities’ patterns of financial resilience in times of austerity. Interviews have been driven in four middle size municipalities in various financial situation, to understand the effects of the crisis on their vulnerability and the influence of their financial and organisational capacities on their resilience patterns.

The study shows that all four municipalities enhanced their responsiveness following the 2015 cut in grants. The latter appeared as a major shock that prompts them to change their behaviours and strengthen their resilience. But municipalities took up different paths of resilience, building up or investing in different anticipatory and coping capacities. Buffering capacities, such as cost cuts, were present in all cases to cope with shocks. Conversely, adapting and transforming capacities were not as prevalent. The pro-active resilient municipality relies on a mix of capacities. But three out of four cases show patterns of financial resilience that leave them insufficiently prepared for future shocks. This research shows the necessity to develop and constantly maintain anticipatory and coping capacities that are suitable for tackling the municipalities’ specific vulnerability sources.


This chapter investigates financial resilience of German local governments. The local governments included in this analysis challenged the applicability of the financial resilience concept by reporting no significant direct impact of the financial crisis during the last 10 years. This is also in line with more general observations suggesting that Germany weathered the financial crisis successfully and without the dramatic effects on its local governments that are observable in other countries. During semi-structured interviews with key administrative decision-makers, it turned out that the financial crisis impacted the local governments’ commercial tax revenues only in its aftermath, and respondents rather highlighted the refugee crisis in 2015 and sudden changes in the tax base caused by relocation, bankruptcy or economic turmoil as financial shocks. More general trends, for example, upper governmental levels devolving more service and administrative responsibility without sufficient compensation, and in particular long-term issues, that is, high debt levels magnifying effects of financial shocks, seem to challenge German local governments. Some cases included in this investigation seem reluctant to make conflict-laden, but necessary changes, and feel exposed to policies and regulations by upper governmental levels. This creates uncertainty and at times leaves them in a sense of helplessness and infeasibility of proper planning. However, the need for investing resources to build up internal capacities has already been pointed out. From a financial resilience perspective, this seems even more important in a context where relying on buffering was feasible, but might prove insufficient once other internal capacities are required to tackle local governments’ financial vulnerabilities.


The crisis exposed Greek municipalities to bilateral financial pressures from cutbacks and increased needs for social assistance. They were directly affected by cheese-slice austerity measures that were implemented in the whole public sector (hiring freeze, cutbacks of salaries, dismissal of employees on contract basis) and successive cutbacks of state grants. In this chapter we discuss the case of four Greek municipalities. The sample was selected by taking into account the average financial performance of municipalities in terms of accrual accounting surplus/deficit over operating revenues and the volatility of this measure of financial performance over the period 2002–2012. In all four municipalities, interviews with an elected politician and municipal officials were conducted on the basis of a structured questionnaire that has been given to the interviewees before the meeting. The analysis revealed that all cities did not show significant anticipatory capabilities. This might be due to several shocks related to central government policies that were difficult to predict and to the ambiguity of the financial condition in the country. Municipalities proved to be particularly flexible and open towards social innovation and responded to the crisis through adaptation but they exhibited limited internal transformation. Nevertheless, the shock due to the crisis and the unprecedented decrease in municipal budgets has triggered a cultural shift towards more prudent management and parsimony. These findings show that Greek municipalities are still rather vulnerable to future shocks and especially to a further deepening of the on-going financial crisis.


The 2008 economic and financial crisis has particularly hit Italy, forcing governments to cope with unprecedented shocks affecting their financial conditions. Drawing on the resilience concept, the chapter aims to investigate what capacities are deployed and developed by Italian local governments to respond to such shocks. Based on a multiple case study, it explores the role of organisational features and capacities, as well as the characteristics of the external environment, in affecting responses and the related results. From the analysis it emerges that different capacities have been deployed by Italian municipalities to anticipate and cope with financial shocks in recent years, leading to four main patterns of financial resilience: proactive and internally driven, fatalist, constrained and contented resilience. The contribution highlights that simply relying on (past) wealthy conditions, or accumulating resources, is not sufficient for coping with shocks. By contrast, it emphasises the importance of investing on anticipating the consequences of negative events.


Since 2010, Dutch local authorities (LGs) have been coping with fiscal stress and austerity. Restoring fiscal balance is difficult for Dutch LGs as they have very limited abilities to increase the level of local income. Fundamental choices regarding policy priorities and public services are required to reduce fiscal deficits. An in-depth case study of four carefully selected LGs revealed three typical financial shocks in the Netherlands: the reduction of national transfers to LGs, the decentralisation of national tasks to LGs without corresponding budgets and the declined value of municipal assets (construction land). The perceived vulnerability for financial shocks is relatively high in Dutch LGs due to their undiversified and uncertain revenue sources. This chapter illustrates that while the anticipatory capacity initially was low, many efforts have been made since 2010 improving risk management and medium-term financial planning. Dutch LGs have typically deployed short-term and long-term responses to cope with austerity. Regarding the short-term, two types of responses were commonly used to balance the budget: cutting costs and postponing investments. Long-term responses were deployed to realign actual operational outputs with strategically desired outputs. Sticking to strategic plans was not easy as financial shocks evolved quickly. An important long-term response in the Netherlands was the ‘transition of the role of government in society’, moving from a proactive self-organising type of government towards a more passive, coordinating type of government. No evidence was found for radical changes of the financial system.


In this chapter, the development of financial sustainability and resilience in Swedish local governments is analysed. We analyse four Swedish municipalities, where we have interviewed top managers and co-workers. As a complement, we have examined the municipalities’ strategic plans, budget documents and annual reports. We also contextualise this analysis with other findings from local government research during this time, as well as with central government initiatives. In summary, we examine why Swedish municipalities in general remained strong after the financial crisis by showing how they strengthened their anticipatory and coping capacities over time – something that, in the cases of this chapter, was achieved before the 2008/2009 crisis in response to previous crises, rather than because of it. We also show that this is not the only reason. As Swedish finances were comparatively stable, and the problems of the banking sector relatively small, the financial shocks to the municipalities could be overcome relatively easily.


The United States (U.S.) has been described as the root of the global financial crisis. The events of the financial, sovereign debt, and Euro crisis and the accompanying economic turmoil that have spread throughout most of the Western world have been traced back to the excessive consumer borrowing, sub-prime mortgage lending and ultimately the housing bubble in the United States. Its burst in 2008 created a shock that overshadowed prior recession and fiscal stress of governmental entities in the United States. Deriving over 90% of their own tax revenues from property taxes, local governments in Michigan have been hit even more excessively. However, the cases analysed in this chapter not only tell a unique story of deep shock and legacy costs, but also of creative ways of surviving the crisis, exerting different patterns of financial resilience. In general, state regulations restricted buffering the impact, and some cities additionally suffered from their geographical vicinity to and economic dependency on Detroit, a city that stands for the turbulence of the U.S. automobile industry. After first deploying buffering capacities that still existed, two cases saw the crisis as an opportunity to address their vulnerabilities (reactive adapters), an opportunity that was not recognised in the case of a constrained adapter. In contrast, one case showed strong anticipatory and coping capacities that have been built up in the past, equipping the local government to operate in a lean and efficient way, and to proactively adapt to arising shocks.


Ambitious though it is to summarise the richness of experiences emerging from the country chapters in a few lines, in this concluding chapter we attempt a short synthesis and interpretation, searching for different approaches to resilience and the underlying contextual and organisational explanatory variables. In doing so, we summarise what we have learned about the financial resilience of local governments across 11 countries and discuss possible developments and future research avenues.

While the financial crisis – in some way – impacted most of the countries included in this book, the effects on local governments were not uniform, with some being affected immediately and/or more substantially than others, partly due to the proximity of the crisis, the natural effects of pre-existing fiscal profiles and intergovernmental relations or national coping policies.

The analysis conducted across the 45 local shows that resilience can take different forms, but that important commonalities can be identified across countries. This reveals that there is no one single approach to resilience and that organisations have the choice, based on their latent capacities and how they perceive their vulnerability in the face of a crisis, over which pathway they follow.

The different patterns of financial resilience that emerge can be interpreted as the result of the dynamic interplay among the dimensions of anticipatory capacity, coping capacity and financial shocks, as well as a local government’s associated vulnerability to them.

Cover of Governmental Financial Resilience
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Public Policy and Governance
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Emerald Publishing Limited
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