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Capital grants and regional public investment in Spain: fungibility of aid or crowding-in effect?

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  • Santiago Lago-Penas

Abstract

The aim of capital grants to subcentral governments is to increase their investment. However, recipients may try to allocate additional resources to cut saving or deficit, generating a crowding-out effect on self-financed investment. Using data from the Spanish Autonomous Communities during the period 1984 to 1999, the effect of capital transfers on regional public investment, saving and deficit are estimated. Econometric results demonstrate that capital grants have no relevance when explaining the dynamics of saving. However, in deficit regressions they are shown to be both significant and negative. Both results lead us to a partial long-run crowding-out effect of grants on self-financed investment.

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  • Santiago Lago-Penas, 2006. "Capital grants and regional public investment in Spain: fungibility of aid or crowding-in effect?," Applied Economics, Taylor & Francis Journals, vol. 38(15), pages 1737-1747.
    • Handle: RePEc:taf:applec:v:38:y:2006:i:15:p:1737-1747
    DOI: 10.1080/00036840500427163
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    2. Kappeler, Andreas & Solé-Ollé, Albert & Stephan, Andreas & Välilä, Timo, 2013. "Does fiscal decentralization foster regional investment in productive infrastructure?," European Journal of Political Economy, Elsevier, vol. 31(C), pages 15-25.
    3. Asim, Aysha & Ismail, Aisha, 2019. "Impact of Leverage on Earning Management: Empirical Evidence from the Manufacturing Sector of Pakistan," Journal of Finance and Accounting Research, University of Management and Technology, Lahore, vol. 1(1), pages 70-91, February.
    4. Vallés-Giménez, Jaime & Zárate-Marco, Anabel, 2017. "Fungibility and bandwagon effects of capital transfers in a federal context," Economics Discussion Papers 2017-46, Kiel Institute for the World Economy (IfW Kiel).
    5. Lorena Viñuela, 2014. "Trends and Quality of Decentralized Public Investment," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1407, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    6. Marcel Thum & Thomas Fester & Andreas Kappler & Helmut Seitz, 2005. "Öffentliche Infrastruktur und kommunale Finanzen : Gutachten im Auftrag des Bundesministeriums für Verkehr, Bau- und Wohnungswesen und des Bundesamtes für Bauwesen und Raumordnung," ifo Dresden Studien, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 37, July.
    7. Kappeler, Andreas & Solé-Ollé, Albert & Stephan, Andreas & Välilä, Timo, 2013. "Does fiscal decentralization foster regional investment in productive infrastructure?," European Journal of Political Economy, Elsevier, vol. 31(C), pages 15-25.

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