The impact of excess taxing capacity on short‐term resources.

Local governments aim to accumulate slack resources to mitigate economic turbulence. Yet efforts to increase multiple slack resources could hinder accumulation. This paper examines whether increasing one form of slack is detrimental to the accumulation of another. By using data from 672 New York local governments from 1996 to 2016, this article examines the impact of excess taxing capacity, or unused property taxing authority, on unrestricted cash and short‐term borrowing. Regression results indicate that short‐term resources are reduced to boost excess taxing capacity for counties to suggest cash flows can be hindered by increasing political forms of slack. Applications For Practice: •Financial slack resources with lower visibility and monitoring, such as cash reserves and short‐term debt, are likely to be used to maintain the excess taxing capacity of local governments.•Subnational governments are justified in creating tailored approaches that alter short‐term resources while building up excess taxing capacity.•Suggestive evidence indicates counties and villages reduce unrestricted cash, counties increase short‐term borrowing, villages reduce short‐term borrowing, and cities are largely not impacted when excess taxing capacity is increased. [ABSTRACT FROM AUTHOR]