Revenue Diversification and Fiscal Health: An Empirical Study of Large U.S. Cities Using the FiSC Dataset

Abstract

This study investigates the relationship between revenue diversification and fiscal health among large U.S. cities, addressing the persistent challenge of revenue instability in urban public finance. As local governments face increasing fiscal pressures, ranging from intergovernmental aid volatility to cyclical economic downturns, diversifying revenue streams has emerged as a potential strategy for enhancing municipal resilience. Using the Lincoln Institute of Land Policy’s Fiscally Standardized Cities (FiSC) dataset, which provides harmonized fiscal data for over 200 cities from 2000 to 2016, the study employs ordinary least squares (OLS) regression and exploratory factor analysis to examine how own-source revenue, intergovernmental transfers, and tax effort correlate with a city’s fiscal health, proxied by the revenue ratio. Results show that cities with higher shares of own-source revenue tend to maintain stronger fiscal positions, while heavy reliance on intergovernmental transfers or excessive tax effort correlates more weakly or negatively with stability. These findings provide empirical support for fiscal federalism theory by affirming the advantages of localized revenue control. By integrating standardized metrics with robust statistical techniques, this research fills a notable gap in the municipal finance literature and offers actionable insights for policy reforms aimed at strengthening local revenue autonomy. The study contributes both theoretically and practically to ongoing debates about sustainable urban fiscal governance.

Keywords: Revenue diversification, municipal finance, council-manager governance, fiscal health, urban economics, U.S. cities, local governments, service delivery, governance structures.

DOI: 10.7176/RJFA/16-7-01

Publication date:August 31^st 2025