No. 15/2012: Central government control and fiscal adjustment : Norwegian evidence

Abstract

Norwegian local governments that violate the balanced budget rule (BBR) are placed in a register. The consequence of being in the register is that the budget and resolutions to raise new loans must be approved by the county governor, the central government's representative in the county. Local governments in the register are subject to stronger central government control and must tighten their budgetary policy in order to be removed from the register. The findings suggest that local governments in the register improve their operating surplus, mainly due to cost reductions.
JEL Classification: H71, H72, H74, H77
Keywords: Fiscal adjustment, balanced budget regulations, fiscal federalism