When Push Comes to Shove: The Effect of Economic Crisis on the Spending of Government Savings

Abstract

This study explores whether and how an economic crisis affects the spending of government savings by focusing on its political-economic benefit. Despite a great deal of discussion about the government’s tendency toward more spending, relatively few studies have attempted to identify the conditions that can reverse the tendency. Using data from 254 California cities during 1996–2009, this study finds a regular U-shape relationship between unemployment rates and government savings. Savings decrease until the unemployment rate reaches almost double digits (9.9%) and begin to recover after this point. The results suggest that an economic crisis curbs the spending tendency by modifying the incentives of legislators. This study contributes to public administration research by explaining local government savings and its delayed responses to a crisis from a political-economic perspective.