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An Examination of the Dynamic Behavior of Local Governments Using GMM Bootstrapping Methods

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Author Info
Dahlberg, Matz () (Department of Economics)
Johansson, Eva () (Department of Economics)

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Abstract

Recent Monte Carlo evidence has shown that tests based on asymptotic critical values tend to reject a true null too often, while tests based on bootstrap critical values have empirical sizes that are very close to the nominal ones. This casts doubt on the growing number of studies indicating considerable dynamics in local government behavior since they all rely on asymptotic critical values. Using GMM bootstrapping techniques, this paper re-investigates the dynamic interrelationship between local government revenues and expenditures. Further, the results are compared with those obtained using asymptotical critical values. The panel covers 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 behavior in the local public sector.

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Publisher Info
Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 1997:11.

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Length: 20 pages
Date of creation: 07 Apr 1997
Date of revision:
Publication status: Published in Journal of Applied Econometrics, 2000, pages 401-416.
Handle: RePEc:hhs:uunewp:1997_011

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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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Web page: http://www.nek.uu.se/
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Related research
Keywords: GMM bootstrapping; local governments; revenues-expenditures nexus;

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Find related papers by JEL classification:
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. 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, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  2. Dahlberg, Matz & Johansson, Eva, 1998. "The Revenues-Expenditures Nexus: Panel Data Evidence from Swedish Municipalities," Applied Economics, Taylor and Francis Journals, vol. 30(10), pages 1379-86, October. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
  4. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July. [Downloadable!] (restricted)
  5. Joel L. Horowitz, 1996. "Bootstrap Methods in Econometrics: Theory and Numerical Performance," Econometrics 9602009, EconWPA, revised 05 Mar 1996. [Downloadable!]
  6. Bergström, Pål & Dahlberg, Matz & Johansson, Eva, 1997. "GMM Bootstrapping and Testing in Dynamic Panels," Working Paper Series 1997:10, Uppsala University, Department of Economics.
  7. 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. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
  9. 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. [Downloadable!] (restricted)
  10. Russell Davidson & James G. MacKinnon, 1996. "The Size Distortion of Bootstrap Tests," Working Papers 936, Queen's University, Department of Economics. [Downloadable!]
    Other versions:
  11. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1989. "The Revenues-Expenditures Nexus: Evidence from Local Government Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(2), pages 415-29, May. [Downloadable!] (restricted)
    Other versions:
  12. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November. [Downloadable!] (restricted)
  13. 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. [Downloadable!] (restricted)
  14. Dahlberg, Matz & Lindström , Tomas, 1996. "Are Local Governments Governed by Forward Looking Decision Makers?," Working Paper Series 1996:20, Uppsala University, Department of Economics.
  15. Anderson, T. W. & Hsiao, Cheng., 1980. "Estimation of Dynamic Models with Error Components," Working Papers 336, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
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Cited by:
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  1. Constantino Cronemberger Mendes & Maria da Conceição Sampaio de Sousa, 2006. "Demand for locally provided public services within the median voter's framework: the case of the Brazilian municipalities," Applied Economics, Taylor and Francis Journals, vol. 38(3), pages 239-251, February. [Downloadable!] (restricted)
  2. Dahlberg, Matz & Mörk, Eva, 2005. "Public Employment and the Double Role of Bureaucrats," Working Paper Series 2005:3, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  3. Bergström, Pål & Dahlberg, Matz & Johansson, Eva, 1998. "Municipal labour demand," Working Paper Series 1998:1, IFAU - Institute for Labour Market Policy Evaluation. [Downloadable!]
  4. Dahlberg, Matz & Mörk, Eva & Rattso, Jorn & Ågren, Hanna, 2006. "Using a discontinuous grant rule to identify the effect of grants on local taxes and spending," Working Paper Series 2006:25, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  5. Griet Malengier & Lorenzo Pozzi, 2005. "Examining Ricardian Equivalence by estimating and bootstrapping a nonlinear dynamic panel model," Money Macro and Finance (MMF) Research Group Conference 2005 61, Money Macro and Finance Research Group. [Downloadable!]
  6. G. Malengier & L. Pozzi, 2004. "Examining Ricardian Equivalence by estimating and bootstrapping a nonlinear dynamic panel model," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/274, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
  7. Constantino Cronemberger Mendes & Maria da Conceição Sampaio de Sousa, 2004. "Demand For Locally Provided Public Services Within The Median Voter'S Framework: The Case Of The Brazilian Municipalities," Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32th Brazilian Economics Meeting] 027, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  8. Dahlberg, Matz & Mörk, Eva, 2008. "Is there an election cycle in public employment? Separating time effects from election year effects," Working Paper Series 2008:3, IFAU - Institute for Labour Market Policy Evaluation. [Downloadable!]
    Other versions:
  9. Edmark, Karin, 2007. "Strategic Competition in Swedish Local Spending on Childcare, Schooling and Care for the Elderly," Working Paper Series 2007:21, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  10. Dahlberg, Matz & Forslund, Anders, 1999. "Direct displacement effects of labour market programmes: the case of Sweden," Working Paper Series 1999:7, IFAU - Institute for Labour Market Policy Evaluation. [Downloadable!]
    Other versions:
  11. Antti Moisio, 2002. "Essays on Finnish Municipal Finance and Intergovernmental Grants," Research Reports 93, Government Institute for Economic Research Finland (VATT). [Downloadable!]
  12. Antti Moisio, 2001. "On Local Government Spending and Taxation Behaviour - Effect of population size and economic condition," ERSA conference papers ersa01p170, European Regional Science Association. [Downloadable!]
  13. Navon, Guy, 2006. "Budgetary Dynamics in The Local Authorities in Israel," MPRA Paper 9707, University Library of Munich, Germany. [Downloadable!]
  14. Bergström, Pål, 1999. "Bootstrap Methods and Applications in Econometrics - A Brief Survey," Working Paper Series 1999:2, Uppsala University, Department of Economics. [Downloadable!]
  15. Dahlberg, Matz & Jacob, Johanna, 2000. "Sluggishness, Endogeneity and the Demand for Local Public Services," Working Paper Series 2000:17, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  16. Bergström, Pål & Dahlberg, Matz & Johansson, Eva, 1998. "Municipal Labour Demand - Sweden 1988 - 1995," Working Paper Series 1998:24, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  17. Antti Moisio, 2001. "On Local Government Spending and Taxation Behaviour - effect of population size and economic condition," Discussion Papers 257, Government Institute for Economic Research Finland (VATT). [Downloadable!]
  18. Albert Sole-Olle & Pilar Sorribas-Navarro, 2009. "The dynamic adjustment of local government budgets: Does Spain Behave differently?," Working Papers in Economics 226, Universitat de Barcelona. Espai de Recerca en Economia. [Downloadable!]
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