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An examination of the dynamic behaviour of local governments using GMM bootstrapping methods

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  • Matz Dahlberg

    (Department of Economics, Uppsala University, Box 513, SE-751 20 Uppsala, Sweden)

  • Eva Johansson

    (Department of Economics, Uppsala University, Box 513, SE-751 20 Uppsala, Sweden)

Abstract

Even though recent Monte Carlo evidence has shown that the use of bootstrap critical values, instead of asymptotic ones, improves the size of the tests substantially, empirical applications using GMM bootstrap techniques are largely missing. In this paper, the dynamic relationship between local government revenues and expenditures is re-investigated using GMM bootstrapping techniques on a panel of 265 Swedish municipalities over the period 1979-1987. A lag of one year is found in the expenditures equation, while no dynamics is found in the own-source revenues and grants equations. These results, while contrasting sharply with those obtained when asymptotic critical values are used, are well in line with the theoretical explanations given in the literature for dynamic behaviour in the local public sector. Copyright © 2000 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 15 (2000)
Issue (Month): 4 ()
Pages: 401-416

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Handle: RePEc:jae:japmet:v:15:y:2000:i:4:p:401-416

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  1. Davidson, R. & Mackinnon, J.G., 1996. "The Size Distorsion of Bootstrap Tests," G.R.E.Q.A.M. 96a15, Universite Aix-Marseille III.
  2. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  3. Bergström, Pål & Dahlberg, Matz & Johansson, Eva, 1997. "GMM Bootstrapping and Testing in Dynamic Panels," Working Paper Series 1997:10, Uppsala University, Department of Economics.
  4. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-71, October.
  5. Joel L. Horowitz, 1996. "Bootstrap Methods in Econometrics: Theory and Numerical Performance," Econometrics 9602009, EconWPA, revised 05 Mar 1996.
  6. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  7. Rubinfeld, Daniel L., 1987. "The economics of the local public sector," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 11, pages 571-645 Elsevier.
  8. Douglas Holtz-Eakin & Whitney K. Newey & Harvey S. Rosen, 1987. "The Revenues-Expenditures Nexus: Evidence from Local Government Data," NBER Working Papers 2180, National Bureau of Economic Research, Inc.
  9. Hall, Peter & Horowitz, Joel L, 1996. "Bootstrap Critical Values for Tests Based on Generalized-Method-of-Moments Estimators," Econometrica, Econometric Society, vol. 64(4), pages 891-916, July.
  10. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
  11. Matz Dahlberg & Eva Johansson, 1998. "The revenues-expenditures nexus: panel data evidence from Swedish municipalities," Applied Economics, Taylor & Francis Journals, vol. 30(10), pages 1379-1386.
  12. Dahlberg, Matz & Lindström , Tomas, 1996. "Are Local Governments Governed by Forward Looking Decision Makers?," Working Paper Series 1996:20, Uppsala University, Department of Economics.
  13. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  14. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
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