University of Technology Sydney

15637 Introduction to Local Government Economics and Finance

Warning: The information on this page is indicative. The subject outline for a particular session, location and mode of offering is the authoritative source of all information about the subject for that offering. Required texts, recommended texts and references in particular are likely to change. Students will be provided with a subject outline once they enrol in the subject.

Subject handbook information prior to 2020 is available in the Archives.

UTS: Design, Architecture and Building: Institute for Public Policy and Governance
Credit points: 6 cp
Result type: Grade and marks

There are course requisites for this subject. See access conditions.


This subject focuses on key economic and finance concepts and theories as they pertain to local government. Undertaking this subject enables participants to:

  • understand the sources of revenue for local government and how revenue is used to produce the various categories of local government goods and services
  • appreciate the financial sustainability challenges facing local government and the major factors which contribute to the problems
  • describe the various interventions which have been proposed or employed to address financial sustainability concerns
  • evaluate the efficacy of interventions and apply this knowledge to professional practice.

As an elective subject for postgraduate local government studies, the subject also explores related issues of equity, accountability and transparency. Students engage with scholarly materials and debate and extend their understanding of local government taxation, debt, fees for service, developer levies, intergovernmental grants, resident demand and information asymmetries. Students are encouraged to reflect on the integration of theory with practice, enhancing their academic and research skills.

Subject learning objectives (SLOs)

On successful completion of this subject, students should be able to:

1. Define and debate key concepts relating to the provision and funding of local government goods and services
2. Build, extend and illustrate their understanding of key theoretical concepts for local government economics and finance, and demonstrate an appreciation for how these might be employed in practice
3. Identify and critically examine interventions aimed at enhancing the financial sustainability of local government
4. Describe and develop interventions aimed at enhancing the financial sustainability of local government

Course intended learning outcomes (CILOs)

This subject also contributes to the following Course Intended Learning Outcomes:

  • Apply leadership skills to take a proactive and convincing role in in fostering cultural competence and identifying and addressing policy issues (A.2)
  • Communicate and engage effectively with people from diverse perspectives and cultures across multiple platforms, acknowledging the status of Indigenous peoples to develop cross-disciplinary strategy (C.1)
  • Synthesise and deliver well-informed, engaging and effective presentations in written, oral and digital formats for diverse audience types (C.2)
  • Apply processes of organisational practice and review for a broad range of policy fields across diverse types of organisations, relating to local government (P.1)
  • Consider, analyse and evaluate complex arguments and multiple interests within specific contexts, particularly as they pertain to local government and intergovernmental relations (R.1)
  • Identify, interpret and evaluate different evidence required in organisational change and decision-making (R.2)
  • Conduct independent applied research to develop a deep understanding of complex policy problems and innovative, cross-disciplinary solutions pertaining to government and its stakeholders (R.3)

Teaching and learning strategies

This subject is run as an extended period of self-directed learning online through the UTS Canvas platform. There is a strong emphasis on students engaging in independent reading and reflection on the material through self-directed study, incorporating a range of teaching and learning strategies, including presentations, deliberation of concepts and theory-practice integration via the medium of case studies, and review and discussion of independent student reading. The subject utilises five main modes of teaching/learning, all underpinned by the principles of adult education:

Self-directed learning

Strongly based on a flipped-learning approach, students engage in readings, accessing core and additional readings through the UTS Canvas system and library. Students extend, test and reflect on their self-study in workshop sessions in which the material is organised into modules of teaching/learning (see ‘Content’ below) that strongly direct participants’ attention to the value and utility of integrating theory with practice.

Structured presentation of trends, issues and background research

Presented by UTS academic staff and expert presenters, the modules are based on local government research and academic theory.

Active learning

An interactive and professional development approach enables participants to discuss course content and reflect on issues and practices within their own councils while comparing these with the experiences of their peers and other councils. It includes structured reflection on experience, work-based case studies, workshop tasks and analysis, and the structuring and conduct of the assessments and the feedback provided to students on the basis of those assessments (see ‘Assessment’ below).

Applying theory to practice

Participants apply local government economic and finance principles to their own work situations and demonstrate this learning through the writing of a Professional Report.

Collaborative learning

Participants who have completed subjects such as this elective offering in local government studies regularly provide feedback that a noteworthy part of their learning and development can be attributed to the peer-to-peer contact, sharing and learning that occurs in the workshops, small group problem-solving activities, simulations and facilitated whole-of-class discussions, methods that are explicitly included in the overall teaching/learning approach in order to promote peer learning.


Students will receive extensive written feedback on each assessment that they should retain and employ to guide preparation of sequent assessments.

Content (topics)

During the course of the structured teaching/learning experiences, students address the following broad themes of the theory of local government economics and finance.

Module One: The Financial Sustainability Challenge and Types of Local Government Goods and Services

Students are presented with data and scholarly materials which describe the financial sustainability challenges facing local government in Australia and abroad. From reading these materials, students are led to an understanding of why some local government sustainability is faltering. We then describe the basic types of local government goods and services – public, private, merit and positive externality – with a focus the economically efficient and equitable funding for each.

Module Two: Local Government Taxation

We draw on Natural Law and the seminal works of Henry George, to build an ethical and economic case for levying a land tax. We then describe the two major approaches to levying land tax – unimproved land value (ULV), and capital improve land value (CIV) – and the implications of each for economic efficiency and the ethical distribution of funding burden. We conclude with a brief introduction to local government taxation limitation practice and literature.

Module Three: Local Government Fee (including Developer Levies), Supply and Demand

This module commences with an explication of price signalling, supply and demand. We then review the two principal methods for calculating fees – demand-side and supply-side approaches – and the implications of each for financial sustainability, equity and the local economy. Thereafter we briefly review the history, theory and practice of developer levies in terms of administrative challenges and social economic value.

Module Four: Intergovernmental Grants

This module reviews the concepts of vertical fiscal imbalance (VFI) and horizontal fiscal equalisation (HFE) with particular reference to federations. We then explore the reasons for desiring HFE at a municipal level. Thereafter we describe the aims and objectives of the federal legislation which governs the distribution and allocation of financial assistance grants, and demonstrate how this contrasts with actual practice. We conclude the module with a brief explication of the standard model employed in jurisdictions abroad for distributing intergovernmental grants.

Module Five: Local Government Debt

This module examines local government debt with reference to intergenerational equity, debt capacity, soft budget constraints and moral hazard. Moreover, students will be led to an understanding of common misconceptions relating to the use of debt at a local government level.

Module Six: Expenditure, Accruals Accounting and the Principle of Subsidiarity

We consider both the major categories of expenditure and also the distribution of spending relative to classes of goods and services. This is followed by a brief overview of the conceptual problems inherent in government accrual accounting and the inconsistencies in extant practice. We conclude this module with an explication of the Principle of Subsidiarity (including the implications of same for expenditure and co-production).

Module Seven: Economies of Scale, Scope and Density and Structural Reform

There is a large body of literature which seeks to determine whether there are economies of scale, scope or density for the provision of local government goods and services. Moreover, consultant reports and other materials in support of structural reform routinely misconceive these concepts. We review the economic theory relating to the economies before investigating the evidence to date. The module concludes by considering the implications for structural reform (including amalgamation and shared-services).

Module Eight: Jurisdiction-Level Interventions
This module considers jurisdiction level regulatory practices and interventions in terms of the consequences of same for financial sustainability. Cost-shifting, rate-capping, fee regulation, developer levy regulation, pensioner discounts, directly elected mayors, local government taxation reform, and amalgamation are explored. Moreover, we consider other potentially efficacious interventions as detailed in the literature (such as balance budget legislation, pre-election performance reports and other measures to address information asymmetries).

Module Nine: Entity-Level Interventions

In this module, we consider entity-level interventions which might be made to improve financial sustainability. These include, inter alia, participatory budgeting, altering ward structures, sending accurate price signals, rationalising assets, reviewing subsidium levels (including introducing variable rates of subsidium according to need), and reviewing fees and charges for non-public goods.

Module Ten: Performance Monitoring

We review important concepts associated with entity-level performance monitoring (PM) and the unintended consequences that might arise. We also present empirical evidence from the recent PM implemented in NSW to demonstrate the scale of unintended outcomes. We conclude the module with an argument that PM must be considered to be an essential aspect of local government finance.


Assessment task 1: Essay


In writing this essay participants will demonstrate their undestanding of the principal problems of financial sustainability in local government in Australia and methods to remedy these from the levels of both state and local government.


This task addresses the following subject learning objectives:

1, 2, 3 and 4

This task also addresses the following course intended learning outcomes that are linked with a code to indicate one of the five CAPRI graduate attribute categories (e.g. C.1, A.3, P.4, etc.):

A.2, P.1 and R.1

Type: Essay
Groupwork: Individual
Weight: 40%
Criteria linkages:
Criteria Weight (%) SLOs CILOs
Skill in identifying and analysing reference material from a wide range of sources, as demonstrated through using and acknowledging that literature via consistent and accurate in-text referencing and the compilation of an accurate reference list. 10 1 R.1
Skill in structuring complex information, arguments and ideas in written form, as demonstrated through the structure of the text and its readability 30 2 R.1
The studentís exploration of the topic demonstrates knowledge of financial sustainability challenges facing local governments and the difference between entity level and jurisdictional level interventions 30 3 P.1
The student critiques interventions consistent with scholarly conventions 30 4 A.2
SLOs: subject learning objectives
CILOs: course intended learning outcomes

Assessment task 2: Multiple Choice Exam


This multiple choice exam is intended to test, and further inform, participants' understanding of key concepts in the economics and finance of local government in Australia and internationally.


This task addresses the following subject learning objectives:

1 and 4

This task also addresses the following course intended learning outcomes that are linked with a code to indicate one of the five CAPRI graduate attribute categories (e.g. C.1, A.3, P.4, etc.):

C.1 and C.2

Type: Examination
Groupwork: Individual
Weight: 20%
Criteria linkages:
Criteria Weight (%) SLOs CILOs
The student demonstrates evidence of having learnt key concepts and definition relating to the course 75 1 C.1
The student demonstrates that they can apply key concepts to local government practice and can discern common misconceptions 25 4 C.2
SLOs: subject learning objectives
CILOs: course intended learning outcomes

Assessment task 3: Theory-Practice Integration


The objective of this assignment is to enable students to demonstrate their competence in explicitly integrating the concepts covered in Introduction to Local Government Economics and Finance, as discussed in this subject, to your professional practice.


This task addresses the following subject learning objectives:

1, 2, 3 and 4

This task also addresses the following course intended learning outcomes that are linked with a code to indicate one of the five CAPRI graduate attribute categories (e.g. C.1, A.3, P.4, etc.):

.4, .5, R.2 and R.3

Type: Report
Groupwork: Individual
Weight: 40%
Criteria linkages:
Criteria Weight (%) SLOs CILOs
The Professional Report provides a considered appraisal of the given councils financial challenges supported by appropriate evidence (including financial and demographic data). 30 1 R.2
The student is able to explicate on salient aspects of the chosen intervention with appropriate scholarly citations 20 2 R.3
The student demonstrates an understanding of both the benefits of the proposed intervention and the potential obstacles which they must overcome to execute same 30 3 .4
The student shows an understanding of how the proposed intervention will fit in with other jurisdictional level or entity level interventions which may occur in the future 20 4 .5
SLOs: subject learning objectives
CILOs: course intended learning outcomes

Required texts

As it is an elective subject for local government studies at the University of Technology Sydney, it is essential that all students undertaking Introduction to Local Government Economics and Finance be actively engaged with the academic literature. Readings for the modules of the subject are distinguished according to whether they are ‘core readings’ or ‘additional readings and references’. The core readings are made available to students online via Canvas. Students are expected to access the additional readings by making using of the UTS library facilities (especially online access for journal articles) themselves. Core readings include:

Copeland, R. (1968), "Income Smoothing", Journal of Accounting Research, 6, pp. 101-116.

Drew, J. and Campbell, N. (2016). "Autopsy of Municipal Failure: The Case of Central Darling Shire". Australasian Journal of Regional Science, 22(1): 81-104.

Drew, J., and Dollery, B. (2014). Estimating the Impact of the Proposed Greater Sydney Metropolitan Amalgamations on Municipal Financial Sustainability. Public Money & Management, 34(4): 281-288.

Drew, J. and B. Dollery. (2014). "Road to Ruin? Consistency, Transparency and Horizontal Equalisation of Road Grant Allocations in Eastern Mainland Australian States." Public Administration Quarterly, 39(3): 517-545.

Drew, J. and Dollery B. (2016) "Careful What You Wish For: Rate-Capping in Victorian Local Government." Journal of Australian Taxation, 17(1): 139-167.

Drew J, Kortt MA, Dollery B (2014). "Economies of scale and local government expenditure: Evidence from Australia." Administration & Society, 46(6): 632-653.

Drew, J., Kortt, M. and B. Dollery. (2013). "A Cautionary Tale: Council Amalgamation in Tasmania and the Deloitte Access Economic Report." Australian Journal of Public Administration, 72(1): 55-65.

Drew, J., Kortt, M. and B. Dollery. (2016). "Did the Big Stick Work? An Empirical Assessment of Scale Economies and the Queensland Forced Amalgamation Program", Local Government Studies, 42(1): 1-15.

Drew, J. and Grant, B. (2017). "Means, Motive and Opportunity: Distortion of Public Policy Making Performance Management Data." Australian Journal of Public Administration, 75(1): 237-250.

Drew, J. and Dollery, B. (2017). "The Price of Democracy? Political Representation Structure and Per Capita Expenditure in Victorian Local Government." Urban Affairs Review, 53(3): 522-538.

Drew, J. and Grant, B. (2017). Subsidiarity: More Than a Principle of Decentralisation – A View from Local Government. Publius, DOI:

Feld, L. (2014). "James Buchanan’s theory of federalism: From fiscal equity to ideal political order", Constitutional Political Economy, 25, 231-252.

Friedman, Milton. 1993. "Why government is the problem", Stanford: Hoover Institution on War, Revolution and Peace.

Grant, B. and Drew, J. (2017). Local Government in Australia: History, Theory and Public Policy. Springer Palgrave, Singapore. Particular attention should be given to Chapter 4 (4.3) and Chapter 7.

Harris, J. (1999). "Capitalisation and Depreciation of Infrastructure by State and Local Government Entities", Public Budgeting & Finance, Winter 1999: 35-48.

Oates, W. (1999). "An essay on fiscal federalism", Journal of Economic Literature, XXXVII, 1120-1149.

Oates, W. (2005). "Toward a second-generation theory of fiscal federalism", International Tax and Public Finance, 12, 349-373.

Olson, M. (1969). "The principle of fiscal equivalence: The division of responsibilities among different levels of government", The American Economic Review, 59(2), 479-487

Pilcher, R. and Van der Zahn, M. (2010), "Local Governments, Unexpected Depreciation and Financial Performance Adjustment", Financial Accountability & Management, 26, 3, pp. 299 -323.

Pullen, J. (2009). "Henry George and the Australian Economic Association: On land ownership and land taxation", History of Economics Review, 50, 46–71.

Sirico, R. (2014). "Subsidiarity and the reform of the welfare nation-state", Global Perspectives on Subsidiarity (pp. 107-128). New York: Springer.

Stalebrink, O. (2007), "An Investigation of Discretionary Accruals and Surplus-Deficit Management: Evidence From Swedish Municipalities", Financial Accountability & Management, 23, 4, pp. 441-458.

Tiebout, C. (1956). "A pure theory of local expenditures", Journal of Political Economy, 64(5), 416-424.