Sluggishness, Endogeneity and the Demand for Local Public Services
AbstractEarlier studies estimating the demand for local public services by means of the median voter model have typically assumed exogenous regressors and static set-ups. Furthermore, the commonly used log-linear specification of the demand function has in most cases not been supported by a well-defined maximisation problem. In this paper, we investigate whether it is important to control for endogeneity and dynamics in empirical work. Using a panel of 266 Swedish municipalities over the period 1981-1987, our test results show that the regressors are endogenous and that the adjustment process is potentially sluggish. We get significantly lower price- and income elasticities when we control for endogeneity and dynamics. In addition, when we control for endogeneity and dynamics, we can no longer reject the hypothesis that observed behaviour can be rationalised by a Cobb-Douglas utility function. This implies that the log-linear specification of the demand function is valid as long as appropriate econometric techniques are used.
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Bibliographic InfoPaper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2000:17.
Length: 20 pages
Date of creation: 14 Nov 2000
Date of revision:
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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
Web page: http://www.nek.uu.se/
More information through EDIRC
Local public goods; Median voter; Panel data; Endogeneity; Sluggishness;
Other versions of this item:
- Dahlberg, M. & Jacob, J., 2000. "Sluggishness, Endogeneity and the Demand for Local Public Services," Papers 2000-17, Uppsala - Working Paper Series.
- Dahlberg, M. & Jacob, J., 2000. "Sluggishness, Endogeneity and the Demand for Local Public Services," Papers 2000:17, Uppsala - Working Paper Series.
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
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