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Does Having A Diverse Economy Contribute To A Government’s Fiscal Health? A Study Of Economic Diversity And Its Impact On The Fiscal Health Of County Governments During The ‘Great Recession’

IJED, Vol. 14 No. 1, (2020)

The purpose of this paper is to examine how environmental entropy as described by Charles Levine influences the fiscal health of county governments in the United States within the context of economic diversity of the local economy. Based the organizational decline, fiscal health, and regional economics literature, this study tests if economic diversity, as a way to mitigate economic risk during environmental entropy, has a significant relationship with fiscal health. The hypothesis is that economic diversity will have a significantly positive relationship with the fiscal health of county governments.
Three hundred and forty county governments were examined between 2006-2011 using data from the GFOA Financial Indicators Database to measure fiscal health with Brown’s 10-Point Test and county-level, industry-specific wage data from the Bureau of Labor Statistics to measure economic diversity with a Herfindahl-Hirschmann Index. A fixed effects least-squares dummy variable model was utilized to determine whether or not county government fiscal health had a statistically significant relationship with economic diversity.
No statistically significant relationship between county government fiscal health and economic diversity was found. However, county population size and unemployment were statistically significant with fiscal health for all years of the study. Additionally, political ideology was statistically significant with fiscal health during the recession and post-recession years.

Keywords: Organizational Decline; Fiscal Health; Economic Diversity; County Government; Great Recession

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