Financial Resilience

Abstract

This paper has examined the theoretical background and the empiricism of the appearance of financial resilience at local governments. Little has been written about financial resilience in local governments. However, due to widespread austerity policies in all Western states and local governments, there is a need for conceptualization of financial resilience. Barbera et. al. (2014) started their empirical research on this subject in three European countries. In order to contribute to this literature on financial resilience in local governments, this paper is a replication of the research of Barbera et. al. (2014). The main subjects of this paper are: responses to financial shocks, the existence of financial resilience, and the relationship between responses to shocks and financial resilience in local Dutch governments. The central question therefore is: what is the influence of financial resilience on the responses to financial shocks of Dutch municipalities? Short-term responses that are being distinguished in the literature are (1) cutting costs, (2) adjusting investments projects and (3) increasing collected income streams. Dutch local governments show short-term responses that include cutting costs and adjusting investments projects. Long-term responses of local governments differ a lot. Examples of long-term responses that have been distinguished in the literature are: increased willingness to cooperate and the merging of departments. Dutch local governments do show increased willingness to cooperate. Furthermore they have improved their risk management system and tried to change their role in society as long-term responses. Financial resilience exists of five capacities; financial robustness, anticipatory capacity, awareness, flexibility and recovery ability. These capacities determine the existence of financial resilience in local governments and influence responses to financial shocks. Two of these capacities seem to influence patterns of responses the most; anticipatory capacity and awareness. High levels of these capacities result in pro-active/adaptive patterns of responses while low levels of these capacities result in reactive/complacent patterns of responses. Dutch local governments that show higher levels of anticipatory capacity and awareness show patterns of responses that are indeed more pro-active or adaptive. Lower levels of anticipatory capacity and awareness result in reactive/complacent patterns of responses to financial shocks. Furthermore, Dutch local governments appear to bounce forward after experiencing what they call ‘the largest austerity policies ever’. Although the financial shocks that they experienced have been a threat for their financial health, the municipalities also think of these shocks as opportunities to be creative and innovative.