LOCAL GOVERNMENTS MANAGING AUSTERITY: APPROACHES, DETERMINANTS AND IMPACT
| DOI | http://doi.org/10.1111/padm.12222 |
| Author | DENITA CEPIKU,RICCARDO MUSSARI,FILIPPO GIORDANO |
| Published date | 01 March 2016 |
| Date | 01 March 2016 |
doi: 10.1111/padm.12222
LOCAL GOVERNMENTS MANAGING AUSTERITY:
APPROACHES, DETERMINANTS AND IMPACT
DENITA CEPIKU, RICCARDO MUSSARI AND FILIPPO GIORDANO
The global nancial and economic crisis that hit Western countries between 2007 and 2008 has
generated an extensive literature. Several policy responses are now recognized, based on the way
governments reallocate scarce public resources across budget categories; these approaches have a
differential impact on the sustainability of cuts and on performance and trust. What determines the
choice of one approach over another is a relevant, yet unexplored, research question. The article
highlights the factors driving the adoption of specic crisis management approaches. A conceptual
model and key propositions derived from the literature are applied to the case studies of six local
governments. A comparative analysis of the interactions among internal and external determinants
through a multi-year timeframe provides valuable insights that improve our understanding of crisis
management.
INTRODUCTION AND RESEARCH AIMS
The collapse of the US mortgage market in 2007 triggered a worldwide nancial and eco-
nomic crisis (hereafter: global crisis), which soon mutated from a private-sector problem
to a public-sector problem (Kickert 2012; Lodge and Hood 2012; Posner and Sommerfeld
2013). Various researchershave provided an array of insights into the effects of this global
crisis through their analyses of politicization, citizen trust, electoral results, centralization
versus decentralization, the reallocation of competencies among civil society and public
and private sectors, and long-term resilience (Feldheim 2007; Moulton and Wise 2010;
Peters and Pierre 2010; Schick 2011; Thynne 2011; Breunig and Busemeyer 2012; Pollitt
2012; Hastings et al. 2013; Hood and Dixon 2013; Posner and Sommerfeld 2013). Several
types of crisis management have been highlighted, according to the object of cuts and the
approach adopted (Levine 1979; Weaver 1986; Pollitt 2010; Posner and Sommerfeld 2013;
Raudla et al. 2013).
Although it is well recognized that the approach taken to crisis management has major
implications for its consequences, few authors have investigated how the selection of these
approaches occurs (Levine 1985, p. 696; Jimenez 2012). Unlike previous researchers, we
consider reactions to the global crisis as a dependent variable and concentrate on the deter-
minants of choice. We focus on local governments (LGs), which areseldom studied in this
context, although they are specic targets for restoring public nances in many countries.
(See Bartle 1996; Lee et al. 2009; Miller and Hokenstad 2014 for exceptions; Raudla et al.
2013 for a review.) LGs tend to differ in their direction and pace, particularly in decentral-
ized states, and we would expect multiple austerity measures at that level, just as with
national governments (Lodge and Hood 2012). Because these decisions affect nal out-
comes, the policy and managerial responses of LGs to the crisis are highly relevant; deep
resource cuts at this level often go hand in hand with increasing public service demands
and can provide a rich empirical base for theory advancement.
In aiming to contribute a theory-building argument, this article aims to further our
understanding of the factors explaining crisis management approaches and to highlight
Denita Cepiku is at the Department of Management and Law,University of Rome Tor Vergata, Italy. Riccardo Mussari
is at the Department of Business and Law,University of Siena, Italy. Filippo Giordano is at the Department of Economic,
Political Sciences and Modern Languages, LUMSA University,Rome, Italy.
Public Administration Vol.94, No. 1, 2016 (223–243)
© 2015 John Wiley & Sons Ltd.
224 DENITA CEPIKU ET AL.
the dynamics of relationships. Our research questions are twofold. (i) How do LGs cope
with the austerity programmes imposed by the global nancial and economic crisis? (ii)
What factors primarily determine the choice of crisis management approaches at the local
level?
We have examined early effects of various crisis management approaches. Given that
the global crisis began in 2007, but that few national policies addressed it before 2010, it
is still premature to assess the impact in terms of the sustainability of expenditure cuts,
performance of local services, citizen trust and electoral costs.
RESEARCH METHODS
Our decision to adopt a comparative case study method was motivated by the contem-
porary and complex nature of crisis management decisions, the need to retain their holis-
tic characteristics and the type of research questions we wanted to address (Yin 1994).
Furthermore, given that municipal austerity management strategies are path-dependent
and are conducted in a number of rounds, we wanted to observe a multi-year timeframe
that would provide insight into the sequence and dynamics of decision-making processes
and behaviours (Scorsone and Plerhoples 2010; Lodge and Hood 2012; McKinley et al.
2014).
Our empirical analysis beneted from prior theory. Following a thorough review of
various strands of literature on previous and current global crises, we constructed a pre-
liminary conceptual framework on the determinants of austerity management decisions.
It includes external and internal determinants identied in the literature, a taxonomy of
approaches to crisis management, and their expected impact. Both groups of independent
variables combine and shape our main dependent variable – the across-the-board or
strategic approach to crisis management adopted by LGs – with different approaches
exerting different types of impact (our second dependent variable). Drawing again
on prior research, on reasonable assumptions and existing correlative evidence, we
derived some propositions commonly accepted in the two streams of literature developed
post-1970s and post-2007/08 crises. The conceptual framework and the researchable
propositions guided data collection and analysis and were used as a template with which
to compare the empirical results of the case studies (Yin 1994, p. 12).
Data on case studies of six Italian LGs were collected between 2007 and 2015. Italy,
classied by the OECD (2012) as a country ‘under distinct market pressure’, embodies
two key characteristics that render it particularly relevant: institutional devolution and
reduced state transfers to sub-national governments. Decentralization began in the 1990s,
with the direct election of mayors, and culminated in 2009 with scal federalism. The 2007
global nancial crisis hit Italy in the midst of an economic decline and its effects became
disruptive in 2011 (Di Mascio et al. 2013). The national response to the crisis was auster-
ity (OECD 2012, p. 140). The greatest scal consolidation was achieved in 2012 – largely
by increasing tax revenues, reducing tax evasion and introducing non-tax revenue mea-
sures – particularly the reduction of central government transfers to regions, provinces
and municipalities.
Our selection of case studies was guided by the variables of the conceptual frame-
work, using a most-similar–most-dissimilar case design. The aim was to create more
theory-driven variance in the data by selecting cases with different external and internal
contexts (Pauwels and Matthyssens 2004, p. 129). We chose municipalities that were
neither too big nor too small, but with different levels of nancial vulnerability, local
Public Administration Vol.94, No. 1, 2016 (223–243)
© 2015 John Wiley& Sons Ltd.
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