Resist, Recover, Renew: Fiscal Resilience as a Strategic Response to Economic Uncertainty

• Published date: 01 October 2023
• DOI: http://doi.org/10.1177/02750740231186424
• Author: Manita Rao,Juliet Ann Musso,Matthew M. Young
• Date: 01 October 2023
• Subject Matter: Articles

Resist, Recover, Renew: Fiscal Resilience

as a Strategic Response to Economic

Uncertainty

Manita Rao

1

, Juliet Ann Musso

2

and Matthew M. Young

3

Abstract

The cyclicality of economic recessions worsens f‌iscal stability and increases vulnerability to future shocks. This article argues

that the concept of resilience provides an important frame for understanding the dynamic character of public f‌inancial man-

agement. The study introduces a theoretical framework that decomposes f‌iscal resilience into precrisis f‌iscal resistance, post-

crisis f‌iscal recovery, and long-term f‌iscal renewal. It empirically tests the model employing a Cox proportional hazard model

and over three decades of data (1991–2018) covering two previous recessions—the dotcom recession and the Great

Recession. The f‌indings indicate that although strategic decisions associated with revenue diversif‌ication and countercyclical

capacity facilitate f‌iscal resilience, specif‌ic features of local government f‌inances such as the revenue structure and service

structure are critical to f‌iscal recovery and renewal. In addition, the underlying characteristics of each recession affect

whether institutional and economic conditions facilitate f‌iscal resilience. The article discusses implications for f‌inancial man-

agement and emphasizes embedding resiliency-based frameworks in local government strategic planning.

Keywords

f‌iscal resilience, local government, public f‌inancial management

Introduction

This article develops and analyzes the concept of f‌iscal resilience

as a means of framing the f‌iscal viability of local governments

confronting an environment of increasing economic perturbation.

In this context, f‌iscal resilience is def‌ined as the ability of a local

entity to demonstrate quick recovery from economic shocks with

minimal disruption to core service commitments. A number of

recent disruptions have altered not only the resource landscape

of public organizations globally, most recently the economic

impact of COVID-19, but also the Great Recession of 2008–

2010. These disruptions punctuate a trend of more pervasive

f‌iscal uncertainties associated with industrial globalization,

waning citizen trust in government, and unpredictable economic

cycles (Kiewet & McCubbins, 2014). A shift to high uncertainty

requires organizations that can bounce back from disruptions, are

shielded from adverse impact, and return stronger than before.

We argue that the construct of resilience, originating in the

f‌ield of ecology, captures these characteristics. Questions such

as whether a Weberian bureaucracy can demonstrate resilience

and the extent to which resource disruptions impact resilience

capabilities highlight the tensions inherent in identifying what

constitutes resilient public organizations.

This analysis advances the theoretical and empirical literature

on resilience in public administration by introducing a conceptual

framework that specif‌ies the dynamic dimensions of f‌iscal resil-

ience. The framework employs an interdisciplinary perspective,

integrating ecological, organizational, and regional economic the-

ories in conceptualizing a process-based dynamic theory of f‌iscal

resilience that identif‌ies the dynamics through which an organiza-

tion demonstrates resilience and the key attributes of f‌iscal resil-

ience. It addresses the enduring puzzle posed by Boin and Van

Eeten, who stated: “It is not clear what resilience is exactly and

it is hard to recognize resilience in action”(Boin&VanEeten,

2013, p. 430). The f‌iscal resilience framework focuses on

decision-theoretic elements that local public entities can leverage

in response to perturbations while minimizing adverse disruptions

to institutional, organizational, and economic conditions. The

concept of f‌iscal resilience extends the literature on local govern-

ment f‌iscal conditions by anchoring alterations to f‌iscal decisions

and actions around the occurrence of events that trigger perturba-

tions and over which a local entity may have limited control. The

1

AARP Public Policy Institute, AARP, Los Angeles, CA, USA

2

Sol Price School of Public Policy and Urban Planning, University of

Southern California, Los Angeles, CA, USA

3

Institute of Public Administration, School of Governance and Global

Affairs, Leiden University, Leiden, the Netherlands

Corresponding Author:

Manita Rao, AARP Public Policy Institute, AARP, 650 Childs Way, Los

Angeles, CA, USA.

Email: manitara@usc.edu

Article

American Review of Public Administration

2023, Vol. 53(7-8) 296–315

© The Author(s) 2023

Article reuse guidelines:

sagepub.com/journals-permissions

DOI: 10.1177/02750740231186424

journals.sagepub.com/home/arp

theory suggests that f‌iscally resilient organizations combine struc-

tural and institutional features along with anticipatory capabilities.

We also empirically assess the model of f‌iscal resilience

by analyzing the f‌iscal resiliency of California municipalities

in responding to the two major economic contractions of the

2000s: the dotcom and Great recessions. We use a three-

decade panel of f‌ine-grained f‌iscal data to estimate the

dynamic impact of economic recessions on f‌iscal resilience.

Our empirical strategy is the estimation of Cox proportional

hazard models that identify the capacity for f‌iscal resilience

as demonstrated by f‌iscal recovery and renewal. Adopting

an equilibrium framework to operationalize f‌iscal recovery

and renewal, the model estimates the hazard of f‌iscal resil-

ience as a function of local strategic decisions on revenue

diversif‌ication, countercyclical policy, revenue structure,

and service structure. The f‌indings provide new evidence

on how urban places recover from economic recessions in

addition to furthering the conversation on the design of resil-

ient public institutions (Duit, 2016).

Theoretical Dimensions and Determinants

of Fiscal Resilience

This article contributes to the literature on local government f‌iscal

condition, a subf‌ield in public administration, policy, and f‌inance

that stretches back to the 1970s with research by Ladd and

Bradbury (1988), Chernick (1998), Reschovsky (1980), and

Wassmer and Anders (1999). A central thrust of the f‌iscal condi-

tion literature is to determine means of assessing the f‌iscal strength

of cities and determining the local political choices and managerial

strategies that may prevent a f‌iscal crisis. The literature generally

recognizes f‌iscal condition to be a function of an array of external

constraints and internal policy decisions, including institutional

features, local economic context, sociodemographic characteris-

tics, and local political preferences and managerial capacity

(Hendrick, 2004, 2011; Maher et al., 2023). Extensions of this lit-

erature consider the factors that explain f‌iscal capacity and/or dis-

parities across regions or states, and f‌iscal stress experienced by

some cities. For example, Ladd and Yinger (1989) recognize

that revenue-raising capacity relative to tax burden is constrained

by migrational pressures and intergovernmental competition for

industry, constraining the ability of many local governments to

meet f‌iscal demands (also see Chernick, 1998; Chernick &

Reschovsky, 2017). While the broad literature on f‌iscal condition

has identif‌ied many constraints on local government f‌iscal capac-

ity, it faces challenges in producing consistent predictions of f‌iscal

health and in identifying clear strategies to prevent f‌iscal crisis

(Clark, 2015; Gorina et al., 2018). Conceptually, unlike f‌iscal

health which relates to the ability of a government to manage

its contemporaneous f‌inancial obligations with its revenue

streams (Maher et al., 2020), the notion of f‌iscal resilience shifts

conceptual and analytical focus to dynamic f‌iscal decisions that

occur in response to local- or macro economic disruptions that

demonstrate short- as well as long-term recovery.

More recently, the framework of f‌iscal sustainability has

emerged as an extension to the f‌iscal capacity framework.

Fiscal sustainability considers the ability of governments to

meet “the needs of the present generation without compro-

mising the ability of future generations to meet their own

needs”(Chapman, 2008, p. S115). Thus, f‌iscal sustainability

acknowledges the need to consider the ability of organiza-

tions to satisfy service demands with their revenue portfolios

over the longer term. It identif‌ies several stresses on longer-

term sustainability, including the presence of business

cycles, structural imbalances, demographic change, and

changes in the mobility of urban populations and in econo-

mies that are more reliant on mobile services and e-com-

merce. This literature identif‌ies the need both to modify

revenue sources as well as to constrain spending expectations

in the face of longer-term constraints on the ability to f‌inance

services. While the sustainability lens improves on the f‌iscal

capacity frame by incorporating longer-term considerations,

it does not place suff‌icient weight on the dynamic features

of increasingly volatile f‌iscal environments. This article

builds on theories of f‌iscal capacity and f‌iscal sustainability

to develop a resilience framework to characterize systems

that can anticipate and adapt to disruptive change.

The theory of resilience has been applied across disci-

plines as diverse as ecology, economics, psychology, and

organizational theory. The key component of resilience is

its emphasis on change—and the manner in which an entity

—an individual, organization, ecosystem—reacts and recov-

ers in response to a disruptive event. The response of the

organization might involve “bouncing back,”or recovery,

in which the question is whether and how quickly the organi-

zation can return to its previous growth trajectory. It has also

been noted that disruption can create new opportunities that

allow an organization to “bounce forward,”moving to a

new and more favorable trajectory. Our goal is to consider

f‌iscal resilience from a strategic perspective; in other

words, what can public f‌inancial managers do to build resil-

ience, anticipating that the likelihood of disruptive events

will alter their f‌iscal trajectory? The goal is to identify

f‌iscal decisions that help to resist f‌iscal downturns, as well

as those that aid f‌iscal recovery.

Theoretical Antecedents

Resilience provides a useful conceptual tool to examine the

behavior demonstrated by systems, organizations, or individ-

uals in response to uncertainty and crises (Berkes, 2007). The

theoretical lenses in resilience can be broadly grouped into

two categories: an ecological perspective that emphasizes

recovery as a property of self-organizing systems and organi-

zational perspectives where resilience is an outcome of stra-

tegic decisions. Ecological resilience adopts a complex

adaptive system perspective where resilience is “determined

by persistence of relationships within a system and is a

measure of the ability of systems to absorb changes of state

Rao et al. 297