The duration of financial stress : A factor impacting on the implementation of NPM‐delivery forms in local government

Purpose Financial stress features frequently as an explanatory factor in research into decisions concerning the contracting out, or decentralisation, of local public services, though existing empirical studies are not unanimous in their conclusions. The understanding of how financial crises influence these processes could be enhanced by the use of a dynamic methodology that takes into account the following three aspects: the duration of the financial stress, the effectiveness of the action taken and the time‐lag between the crisis and the response. The paper aims to discuss these issues. Design/methodology/approach This study introduces three important innovations in the methodology employed to study financial stress: the consideration of the duration of a financial stress episode as a key factor in promoting changes in the provision of public services; the effectiveness of the measures taken; and time‐lag, which takes into account the extended time horizon over which the local authority may implement business‐like and organisational changes. Findings To date, the techniques used to measure the effects of changes in service delivery methods implemented to alleviate financial stress, have not reflected the true nature of the phenomenon. The results obtained when the new approach proposed in this paper was used to examine Spanish local government responses to financial stress during the period 1999‐2007 confirm that the methodology is well‐judged and effective. Originality/value This study reveals that local authorities facing financial stress of two, three or four years’ duration present percentages of decentralisation and contracting‐out that are significantly higher than is the case for local authorities that implement the same processes in response to crises of one year. These findings confirm the need to carry out studies that include the duration of financial crises as a determinant factor in change processes.