Spillover effects in local public spending

Abstract

We investigate the fiscal interactions between Italian municipalities over the period 2001-2011, and we find a positive horizontal interdependence in spending decisions. Our results are robust to different specifications of the spatial neighbors and are confirmed by a natural experiment (earthquake in the Abruzzo region in 2009) that creates an exogenous variation in the neighbors' spending. Furthermore, there is no evidence of yardstick competition when we consider political effects, while we do find a negative relationship between spatial interaction and the size of the municipality. Thus, we conclude that spillover effects drive the strategic interactions in spending decisions.

Spatial effects on local government efficiency

“…Estimation results reveal the presence of spatial interdependence in the speed of payments among geographically neighbouring municipalities, showing that municipalities mimic not only levels of public expenditure, as shown by past empirical studies, especially in the Italian context (Bartolini & Santolini, ; Ermini & Santolini, ; Ferraresi, Migali, & Rizzo, ), but also the speed with which payments are made to provide public goods and services. Estimates also show that a municipality reacts more to changes in the speed of current spending of neighbouring municipalities than to changes in the speed of payments for other categories of public expenditure.…”

“…This hypothesis is tested by estimating the dynamic SAR model in (5) with the W d < 20km matrix, where the spatially lagged dependent variable is interacted with a dummy variable mv that assumes value 1 if the share of the mayor's votes exceeds a threshold z set at different critical values, and zero otherwise. This approach to testing the sources of spatial dependence in fiscal policy decisions by local governments was already used in other empirical analyses (Ferraresi et al, ; Rizzo, ). The hypothesis of political yardstick competition is verified when η assumes significantly positive values for a mayor's lower voting share and/or significantly negative values for a larger share of the mayor's voting margin.…”

Does intermunicipal cooperation promote efficiency gains? Evidence from Italian municipal unions

“… is a vector of time‐varying variables, accounting for demographic and socioeconomic characteristics. In particular, following the literature on the determinants of local spending (Ferraresi, Migali, & Rizzo, ; Revelli, ; Solè‐Ollè, ; Veiga & Veiga, ), we include the population of the municipality ( population ), the per capita area, calculated as square kilometers divided by population ( area − squared km ), and the inverse of the population (1/ population ). These variables can capture the presence of scale economies or diseconomies in the provision of public goods and congestion effects.…”

Measuring fiscal interactions in local federalism: Evidence from Florida

“…Some measure of weighted neighbour population cannot be ignored for this reason (Solé‐Ollé, 2006). Positive spillovers have been repeatedly found in total expenditure (Case et al, 1993; Ferraresi et al, 2018; Foucault et al, 2008).…”

“…The empirical strategy will consist of estimating a quasi spatial Durbin dynamic panel. Lagged dependent variables are shown to play an important role in municipal budgets (Hendrick et al, 2007; Foucault et al, 2008; Ferraresi et al, 2018). Expenditure is defined as: where is the expenditure in category c for municipality i , residing in county I , in fiscal year t ; and is the previous year's expenditure in that same category.…”