Fiscal resilience, fiscal sustainability and social infrastructure expenditure: the impact of social spending on fiscal health in Austrian local governments

Abstract

Purpose – This study investigates the relationship between fiscal resilience during the 2007/2008 financial crisis and subsequent fiscal sustainability in 2, 093 Austrian local governments. It particularly focuses on spatial dependencies and the influence of social infrastructure expenditure on enhancing fiscal health. Design/methodology/approach – A unique three-step approach is employed in this study. First, fiscal resilience is evaluated using a Spatial Cox Proportional Hazards Model. Second, the results from the Spatial Bayesian Cox Proportional-Hazards Model are utilized to estimate the level of fiscal resilience exhibited by each municipality during the crisis. Third, these results are integrated into a Spatial Durbin Model to assess longer-term fiscal sustainability and the spatial dependencies present. Findings – The findings indicate strong interdependencies between short-term fiscal resilience and longer-term fiscal sustainability. Municipalities with higher fiscal resilience during the financial crisis demonstrate better fiscal health in subsequent years. Additionally, significant spatial dependencies are observed in both resilience and sustainability, with social infrastructure spending and sociodemographic factors influencing fiscal outcomes in the short and longer terms. Originality/value – This study offers a novel approach by combining spatial econometric models to examine both fiscal resilience and sustainability while also focusing on the often-overlooked impact of social infrastructure expenditure. It provides new insights into the importance of spatial and social factors in maintaining fiscal health over time.