Does accountability improve government performance? Evidence from the U.S. state fiscal monitoring and intervention systems

This study examines whether a state fiscal monitoring and intervention system (FMIS) as an accountability mechanism improves local fiscal performance. In doing so, we link the four common features of FMISs (fiscal monitoring, early warning, intervention, and unconditional bankruptcy authorization) to key stages of accountability – the information and consequence phases. Using all U.S. counties from 1970 to 2018, we find that states can improve local fiscal performance by reducing information asymmetry between state and local governments through early warning systems. Our findings further suggest that states should carefully design bankruptcy authorization processes for local governments to prevent moral hazards.