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Fiscal federalism and the composition of public investment in Europe

  • Kappeler, Andreas
  • Välilä, Timo

We analyse the determinants of the composition of public investment in Europe, with a special focus on the role of fiscal decentralisation. The results suggest that fiscal decentralisation boosts economically productive public investment, notably infrastructure, and curbs the relative share of economically less productive investment, such as recreational facilities. While not readily reconcilable with the traditional theory of fiscal federalism, these findings can be interpreted in terms of the literature on fiscal competition, with not only tax rates but also the quality of public expenditure weighing in firms' location decisions.

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Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 24 (2008)
Issue (Month): 3 (September)
Pages: 562-570

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Handle: RePEc:eee:poleco:v:24:y:2008:i:3:p:562-570
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505544

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  1. Aaron Mehrotra & Timo Välilä, 2006. "Public Investment in Europe: Evolution and Determinants in perspective," Fiscal Studies, Institute for Fiscal Studies, vol. 27(4), pages 443-471, December.
  2. Alessandro Turrini, 2004. "Public investment and the EU fiscal framework," European Economy - Economic Papers 202, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
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  4. Steve Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  5. Rodden, Jonathan, 2003. "Reviving Leviathan: Fiscal Federalism and the Growth of Government," International Organization, Cambridge University Press, vol. 57(04), pages 695-729, September.
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  8. Hulten, Charles R. & Schwab, Robert M., 1997. "A fiscal federalism approach to infrastructure policy," Regional Science and Urban Economics, Elsevier, vol. 27(2), pages 139-159, April.
  9. de Haan, Jakob & Sturm, Jan-Egbert, 1997. "Political and economic determinants of OECD budget deficits and government expenditures: A reinvestigation," European Journal of Political Economy, Elsevier, vol. 13(4), pages 739-750, December.
  10. 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, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  11. Dahlby, Bev & Wilson, Leonard S., 2003. "Vertical fiscal externalities in a federation," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 917-930, May.
  12. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  13. Keen, Michael & Marchand, Maurice, 1997. "Fiscal competition and the pattern of public spending," Journal of Public Economics, Elsevier, vol. 66(1), pages 33-53, October.
  14. Dan Stegarescu, 2005. "Public sector decentralisation: measurement concepts and recent international trends," Fiscal Studies, Institute for Fiscal Studies, vol. 26(3), pages 301-333, September.
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  16. Matsumoto, Mutsumi, 1998. "A note on tax competition and public input provision," Regional Science and Urban Economics, Elsevier, vol. 28(4), pages 465-473, July.
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