Financial crisis mainly affected the sale of municipal land
The effects on local government of the financial crisis that began in 2007 are still largely unknown. As a case study, Jan Porth conducted statistical analyses of the implications for Dutch municipal finances. The crisis became most apparent in the sale of municipal land to private companies and households. Porth’s PhD defence is on Tuesday 21 May.
The financial crisis left its mark on citizens, companies and all levels of government. External PhD candidate Jan Porth noticed that while many of the consequences were covered in the media, the financial impact on local government received far less attention. This is of particular interest because local government is responsible for extensive public services in many countries. For his PhD thesis, Porth set out to gain a better understanding of the impact of the crisis on local government. He analysed how the financial crisis had affected the finances of local government in the Netherlands and its approximately 400 municipalities.
The Netherlands as a suitable and interesting case
Porth, a research associate at the German Research Institute for Public Administration, chose to research Dutch municipalities for a number of reasons. ‘Research on local government has the general advantage of a relatively large number of research objects, namely municipalities, with an identical or similar legal framework. This allows for various forms of comparison and quantitative research more generally. With about 400 municipalities, the Netherlands is a suitable case, since there are enough municipalities to draw conclusions from statistical analyses. Given its relatively large financial sector, the Netherlands is also an interesting case in times of financial crisis. When I started thinking about a topic for my PhD research, I was also working at Leiden University in The Hague, which explains my interest in Dutch politics and the Dutch administration.’
Effects found, exact causes need to be researched
Porth looked for patterns in public finances that might indicate consequences of the financial crisis that began in 2007. In the case of the Dutch municipalities, he observed negative effects in the policy area of social services and the balance sheet items of administrative support of the executive board, building permits, and land development. The exact mechanisms behind the effects were not the focus of his mainly quantitative study. However, he says, ‘it is generally assumed, for instance, that expenditure on social services increases during a financial crisis because of higher demand. But identifying the exact mechanisms in the recent financial crisis and financial changes in individual municipalities is a question for further – mainly qualitative – research.’
‘Wait for better market conditions’
Porth also tried to identify why the crisis affected certain municipalities more than others. This might give some pointers on how to reduce the effect of similar financial crises in the future. However, the statistical analyses, which included factors such as the size of the municipality, political majorities and administrative capacities, did not identify one single factor that could explain a large share of the variation across the different types of financial consequence of the recent financial crisis in the case of the Dutch municipalities. Porth did find statistical evidence for some individual assumptions, such as a greater increase in social spending in bigger cities.
‘‘Considering the complexity of public finances, the lack of general patterns is not unexpected,’ says Porth, ‘but it makes it difficult to develop general recommendations. However, one recommendation can be made about developing municipal land with the intention of selling it to private companies or households, an area in which Dutch municipalities have generated their own revenue in the past, and in which the recent crisis became most apparent. If the value of municipal land has decreased, a possible strategy for some municipalities would be to wait for better market conditions, particularly if one reflects upon the cyclical developments of the economy and how the price of plots of land has increased in many countries in more recent years.’
As a scientific consultant, Porth will continue to work on various projects for federal and state government. One of his current projects addresses inter-municipal cooperation in Rhineland-Palatinate, a topic which has some similarities with his research on local government in the Netherlands.