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Strategic Interaction in Local Fiscal Policy: Evidence from Portuguese Municipalities

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Abstract

This paper aims at testing the degree of interaction between Portuguese municipalities’ expenditure levels by estimating a dynamic panel model, based on jurisdictional reaction functions. The analysis is performed for all 278 Portuguese mainland municipalities from 1986 to 2006, using alternative ways to measure neighbourhood. Results indicate that local governments’ spending decisions are significantly influenced by the actions of neighbouring municipalities. For total expenditures, there is evidence that a 10% increase in nearby municipalities’ expenditures boosts expenditures in a given municipality by around 3.8%.

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File URL: http://www3.eeg.uminho.pt/economia/nipe/docs/2011/NIPE_WP_23_2011.pdf
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Bibliographic Info

Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 23/2011.

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Date of creation: 2011
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Handle: RePEc:nip:nipewp:23/2011

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Postal: Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal
Phone: +351-253604510 ext 5532
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Web page: http://www3.eeg.uminho.pt/economia/nipe/versao_inglesa/index_uk.htm
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Related research

Keywords: spending interactions; local government; spatial econometrics; dynamic panel data;

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Cited by:
  1. José da Silva Costa & Armindo Cravalho, 2013. "Yardstick Competition among Portuguese Municipalities: The Case of Urban Property Tax (IMI)," FEP Working Papers 495, Universidade do Porto, Faculdade de Economia do Porto.

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