Interactions in Local Governments' Spending Decisions: Evidence from Portugal

Abstract

Attempts to identify the sources of interaction allow us to conclude that they are due to spillovers that require coordination in expenditure items and to mimicking behaviour possibly to attract households and firms. JEL: C23, H7, R1

EU Regional Policy and the Neighbour's Curse: Analyzing the Income Convergence Effects of ESIF Funding in the Presence of Spatial Spillovers

“…As Costa et al . () further point out, these spillovers can either be beneficial or negative: for instance, if local expenditures refer to local public goods that are complementary (such as infrastructure or environmental services), it is likely that positive spillovers occur. However, for local public goods that are substitutable (higher education facilities for instance), reverse external effects may emerge.…”

“…In all cases, we use a dynamic panel data perspective, where GDP per capita (Y i,t ) in region i=1, …, N in time period t=1, …, T serves as the model's dependent variable. Next 4 Research on spatial spillovers investigates if public expenditure of a jurisdiction generates positive or negative effects spreading across its boundaries, thereby affecting the welfare of residents in neighbouring jurisdictions (Costa et al, 2015). 5 See online Appendix A for further information on the theoretical foundations of the empirical growth model specification.…”

“…Zubek and Henning (2016) argue for the case of EU structural funding that significant spatial spillovers may, for instance, reflect interdependencies among local governments in geographical proximity (that is, they are associated with yardstick competition or joint applications for common infrastructure projects). As Costa et al (2015) further point out, these spillovers can either be beneficial or negative: for instance, if local expenditures refer to local public goods that are complementary (such as infrastructure or environmental services), it is likely that positive spillovers occur. However, for local public goods that are substitutable (higher education facilities for instance), reverse external effects may emerge.…”

Spatial Interaction in Local Expenditures Among Italian Municipalities: Evidence from Italy 2001-2011

“…In particular, there is a line of empirical works (Case et al, 1993;Revelli, 2002;Revelli, 2003;Baicker, 2005;Solé-Ollé, 2006;Werck et al, 2008;Costa et al, 2015) that investigates whether governments make their spending decision taking into account the behavior of their neighbors. In such a framework, expenditures decisions would depend not only on income, grants, socio-demographic and political characteristics of municipalities, but also on spending decision of neighboring municipalities.…”

“…Municipalities face mobile tax bases, which depend on both their own tax rate and their neighbors' tax rate giving rise to tax competition (Kanbur and Keen, 1993;Devereux et al, 2008;Rizzo, 2010). Finally, in the traditional "spillover" model, public expenditures of a municipality may have positive or negative effects beyond its own boundary, thus affecting the welfare of residents in neighboring municipalities (Case et al 1993;Revelli, 2002;Revelli, 2003;Baicker, 2005;Solé-Ollé, 2006;Werck et al, 2008;Costa et al, 2015). As a result, municipalities might decide the level of their own expenditure, by strategically taking into account the expenditures of their neighbors.…”