Urban sprawl and municipal budgets in Spain: a dynamic panel data analysis
AbstractUrban sprawl has recently become a matter of concern throughout Europe, but it is in southern countries where its environmental and economic impact has been most severe. This low-density, spatially expansive urban development pattern can have a highly marked impact on municipal budgets. Thus, local governments may see sprawl as a potential source of finance, in terms of building-associated revenues and increased transfers from upper tiers of government. At the same time, sprawl leads to increased levels of expenditure, as it may raise the provision costs of certain local public goods and requires greater investment in extending basic infrastructure for new urban development. What, therefore, is the net fiscal impact of urban sprawl? Do local governments consider the long-run net fiscal impact of new urban growth or do they simply focus on its short-term benefits, ignoring future development costs? This paper addresses these questions by analysing the dynamic relationship between urban sprawl and local budget variables. To do so, we estimate a panel vector autoregressive model using data for 4,000 Spanish municipalities for the period 1994-2005. Computed Generalised Impulse Response Functions show: (i) that sprawl considerably increases demand for new infrastructure, (ii) that the capital deficit generated by this new infrastructure is covered in the main by intergovernmental transfers and, to a lesser extent, by revenues linked to the real estate cycle, and (iii) that sprawl leads to a short-term current surplus, as the increase in current revenues offsets the increase in current expenditures due to public service provision for new developments. Overall, these findings point to a moral hazard problem for local governments in which inordinate intergovernmental transfers and development revenues encourage excessive urban sprawl.
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Bibliographic InfoPaper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2010/43.
Length: 35 pages
Date of creation: 2010
Date of revision:
Urban sprawl; local public finance; dynamic panel data;
Find related papers by JEL classification:
- H1 - Public Economics - - Structure and Scope of Government
- H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
- R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-30 (All new papers)
- NEP-GEO-2010-10-30 (Economic Geography)
- NEP-PBE-2010-10-30 (Public Economics)
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.:
- Albert Solé-Ollé & Miriam Hortas-Rico, 2008.
"Does urban sprawl increase the costs of providing local public services? Evidence from Spanish municipalities,"
XREAP2008-10, Xarxa de Referència en Economia Aplicada (XREAP), revised Nov 2008.
- Miriam Hortas-Rico & Albert Sole-Olle, 2010. "Does Urban Sprawl Increase the Costs of Providing Local Public Services? Evidence from Spanish Municipalities," Urban Studies, Urban Studies Journal Limited, vol. 47(7), pages 1513-1540, June.
- Albert Solé-Ollé & Miriam Hortas Rico, 2008. "Does urban sprawl increase the costs of providing local public services? Evidence from Spanish municipalities," Working Papers 2008/6, Institut d'Economia de Barcelona (IEB).
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