Empirical Studies in Local Public Finance: Spillovers, Amalgamations, and Tactical Redistribution

This thesis consists of four papers, which concern horizontal as well as vertical interactions and interdependencies in a multilevel public sector. In Paper [I] we study spatial spillover effects in the Swedish local rescue services. The analysis is based on a joint product model where collective security is assumed to contain local and regional public good elements. In the empirical analysis we find that the reaction functions are negatively sloped, meaning that we can not reject the hypothesis of free riding behaviour. It is also found that rescue services can be considered a normal good and that the municipalities respond positively to security policy threats. Paper [II] concerns amalgamation impacts on local public expenditures in Sweden after the 1952 municipal reform. This paper compares the growth of local public expenditures in the newly formed municipalities with the municipalities that were not affected by the reform. The empirical results indicate that municipal amalgamations may realise economies of scale as long as the municipalities do not exceed some critical size. However, when we consider unobservable factors that simultaneously affect amalgamations using an IV model, the amalgamation effects on expenditure growth are not significant. This means that unobservable factors such as natural affinity were important determinants of the effects of the reform. Paper [III] concerns the local government structure and its impact on local growth. In the empirical analysis we study if the 1952 municipal reform affected average income growth and population growth between 1953 and 1959. The results indicate that the reform had a positive effect on population growth in small municipalities. The results also show that the composition of the newly formed municipality may affect subsequent population growth. In Paper [IV] we study if incumbent governments in Sweden distribute temporary grants to municipalities according to political objectives. We also study whether the search behaviour of municipalities is affected by political factors. The sample contains three election years: 1982, 1985, and 1988. It is found that the municipal decision to apply for temporary grants is not affected by political factors. Although the results indicate that socialist governments distribute grants using political criteria the results are ambiguous.