The Impact of Industrial Diversification and Clustering on the Volatility of City Budgets

Budget volatility—the difference between expected and actual revenues and expenditures—is a critical component to sustaining a local government’s fiscal health. While scholars have examined many determinants of budget volatility, less understood is the effect of a local government’s economy—the composition of its economic base—on budget volatility. To fill this gap, panel data methods are used to test the impact of a city’s economic base on budget volatility.