The Intergovernmental Dimension of Local Government Financial Stress: A European Comparative Analysis

Abstract

This thesis investigates the relationship between intergovernmental structures and financial stress in local government. The research compares three European constitutional systems: England, as a centralised case; Germany, representing a federation; and the Netherlands, constituting a unitary-decentralised system. The impact of intergovernmental structures on local finances is identified by concentrating on three core institutional arrangements: intergovernmental financial regulations, grant funding systems, and local tax space. The thesis applies a mixed methodological approach. Based upon a unique panel dataset, the econometric research identifies the institutional causes of local financial stress. The statistical results are complemented by 48 elite interviews, conducted among intergovernmental stakeholders across the three systems. The thesis applies an innovative policy dynamics framework. Findings demonstrate that local financial stress should be primarily understood as a manifestation of a set of inter-related institutions. The results show that despite the constitutionally stronger position of local government in Germany, local financial error accumulation is stronger than in the English system, with the Dutch system occupying a position between the two. A more centralised structure carries a high risk of implementing intergovernmental design failures; however its fluid institutional structure generates a higher capacity to comprehensively address financial errors. More decentralised structures, in contrast, prolong institutional adjustments, resulting in intergovernmental arrangements that are stable over time but contain larger risks of local financial error accumulation. The research findings have both theoretical and practical implications. The thesis expands second-generation fiscal federalism beyond its dominant focus on the meso-level and demonstrates that a higher sensitivity to constitutional varieties improves the cross-system applicability of political economy theories. The thesis also develops an integrated policy dynamics framework that contributes to stronger theory building in public administration studies. Practically, the thesis provides relevant knowledge to policymakers on how to improve the sustainability of local government finances within different institutional contexts.