Infrastructure spillovers and strategic interaction: does the size matter?

Abstract

We set up a model in which the residents of two neighboring municipalities use the services provided by public infrastructures located in both jurisdictions. The outcome is that municipalities strategically interact when investing in infrastructures, with the small municipality reacting more to the expenditure of its neighbor than the big one. This theoretical prediction is tested by estimating the determinants of the stock of public infrastructures of the municipalities belonging to the Autonomous Province of Trento in Italy. By introducing the classical spatial lag-error component, we find that municipalities positively react to an increase in infrastructures by their neighbors, but the effect vanishes above a given population threshold. Such a result is confirmed when we exploit the exogenous variation in the neighbors’ stock of infrastructures induced by a strong flood that occurred in the Province of Trento in 2000

Spillover effects in local public spending

“…Therefore, we perform an additional test to verify whether the municipality size influences the spatial interdependence. The hypothesis is based on the recent findings of Ferraresi et al (2017), who showboth theoretically and empiricallythat the size of a municipality affects spatial spillovers. The rationale is that a highly populated municipality hardly reacts to changes in expenditure by a neighboring municipality, because spillover effects on its residents are negligible.…”

Typologies of 20-Minute Neighbourhoods, Active Transport Use, and Spatial Spillovers

“…the observations are not independent. To address this neighbourhood effect, I estimated five spatial autoregressive (SAR) models, which extended the MLR model by allowing active transport use in one SA1 to be affected by the outcome/typologies/errors from nearby SA1(Ferraresi, Galmarini, and Rizzo 2018). The five models are: Model 2: spatial lag of the outcome (active transport use); Model 3: spatial lag of the factor (typologies); Model typologies(Fageda and Gonzalez-Aregall 2017).…”