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Should large Spanish municipalities be financially compensated? Costs and benefits of being a capital/central municipality

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Author Info

  • Núria Bosch

    ()
    (Universitat de Barcelona & IEB)

  • Marta Espasa

    ()
    (Universitat de Barcelona & IEB)

  • Daniel Montolio

    ()
    (Universitat de Barcelona & IEB)

Abstract

This paper analyse the costs and benefits of being a capital or central municipality, where central costs are understood to be incurred specifically as a result of the problems large municipalities located at the centre of an urban agglomeration face and capital costs are understood to result from the presence of regional and/or central government institutions in the municipality. However, these two qualities might also be beneficial to municipalities, resulting in a direct increase in their fiscal capacity. Here, by estimating an equation of the expenditure needs and the fiscal capacity of Spanish municipalities with more than 75,000 inhabitants, we find that the central costs incurred by large municipalities are offset by their greater fiscal capacity, but that the same is not true for municipalities that serve as political/administrative capitals.

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Bibliographic Info

Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2013/6.

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Length: 29 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:ieb:wpaper:2013/6/doc2013-6

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Keywords: Local financing; large municipalities; central and capital costs and benefits; expenditure needs; fiscal capacity;

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  1. Ladd, Helen F. & Bradbury, Katharine L., 1988. "City Taxes and Property Tax Bases," National Tax Journal, National Tax Association, vol. 41(4), pages 503-23, December.
  2. Iain McLean & Alistair McMillan, 2003. "The Distribution of Public Expenditure across the UK Regions," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 24(1), pages 45-71, March.
  3. Sole-Olle, Albert, 2006. "Expenditure spillovers and fiscal interactions: Empirical evidence from local governments in Spain," Journal of Urban Economics, Elsevier, vol. 59(1), pages 32-53, January.
  4. BRUECKNER, Jan K. & THISSE, Jacques-François & ZENOU, Yves, . "Why is central Paris rich and downtown Detroit poor? An amenity-based theory," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1370, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Richard Hawkins & Matthew N. Murray, 2004. "Explaining Interjurisdictional Variations in Local Sales Tax Yield," Public Finance Review, , , vol. 32(1), pages 82-104, January.
  6. Arthur Midwinter, 2002. "Territorial Resource Allocation in the UK: A Rejoinder on Needs Assessment," Regional Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 36(5), pages 563-567.
  7. Albert Solé-Ollé & Núria Bosch, 2005. "On the Relationship between Authority Size and the Costs of Providing Local Services: Lessons for the Design of Intergovernmental Transfers in Spain," Public Finance Review, , , vol. 33(3), pages 343-384, May.
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