The dynamic adjustment of local government budgets: Does Spain Behave differently?
The aim of this paper is to analyze whether Spanish municipalities adjust in response to budget shocks and (if so) which elements of the budget they are more likely to adjust. The methodology we use to answer these questions is a vector error-correction model (VECM), estimated with data from a panel of Spanish municipalities during the period 1988-2006. Our results confirm, first, that municipalities do indeed make adjustments in response to fiscal shocks (i.e., the deficit is stationary in the long run). Second, we find that most of the adjustment to a revenue shock is borne by the municipalities themselves as they proceed to cut expenditures, with a minor role being played by grant financing. By contrast, adjustments to expenditure shocks are shared on largely equal terms by the municipality through the raising of taxes and higher tiers of government through the raising of grants. These results suggest that the viability of the local finance system is feasible with different institutional arrangements.
|Date of creation:||2009|
|Contact details of provider:|| Postal: Espai de Recerca en Economia, Facultat de CiÃ¨ncies EconÃ²miques. Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona. Spain.|
Phone: +34 93 402 43 13cazza
Web page: http://www.ere.ub.es
More information through EDIRC
References listed on IDEAS
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.:
- Julia Darby & V. Anton Muscatelli & Graeme Roy, 2004.
"Fiscal Consolidation And Decentralisation: A Tale Of Two Tiers,"
2004_2, Business School - Economics, University of Glasgow.
- Julia Darby & V. Anton Muscatelli & Graeme Roy, 2005. "Fiscal consolidation and decentralisation: a tale of two tiers," Fiscal Studies, Institute for Fiscal Studies, vol. 26(2), pages 169-195, June.
- Solé-Ollé, Albert & Sorribas-Navarro, Pilar, 2008.
"The effects of partisan alignment on the allocation of intergovernmental transfers. Differences-in-differences estimates for Spain,"
Journal of Public Economics,
Elsevier, vol. 92(12), pages 2302-2319, December.
- Albert Solé-Ollé & Pilar Sorribas-Navarro, 2006. "The effects of partisan alignment on the allocation of intergovernmental transfers. Differences-in-differences estimates for Spain," Working Papers 2006-09, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
- Albert Solé-Ollé & Pilar Sorribas-Navarro, 2006. "The Effects of Partisan Alignment on the Allocation of Intergovernmental Transfers. Differences-in-Differences Estimates for Spain," CESifo Working Paper Series 1855, CESifo Group Munich.
- Thiess Buettner & David E. Wildasin, 2002.
"The Dynamics of Municipal Fiscal Adjustment,"
CESifo Working Paper Series
649, CESifo Group Munich.
- David E. Wildasin & Thiess Buettner, 2005. "The Dynamics of Municipal Fiscal Adjustment," Working Papers 2005-03, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
- Thiess Buettner & David E. Wildasin, 2003. "The Dynamics of Municipal Fiscal Adjustment," Public Economics 0309007, EconWPA.
- David E. Wildasin, 2001.
"Externalities and Bailouts: Hard and Soft Budget Constraints in Intergovernmental Fiscal Relations,"
- Wildasin, David E., 1997. "Externalities and bailouts : hard and soft budget constraints in intergovernmental fiscal relations," Policy Research Working Paper Series 1843, The World Bank.
- Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
- Albert Solé-Ollé & Elisabet Viladecans-Marsal, 2007. "Economic and political determinants of urban expansion: Exploring the local connection," Working Papers 2007/5, Institut d'Economia de Barcelona (IEB).
- Matz Dahlberg & Eva Johansson, 2000.
"An examination of the dynamic behaviour of local governments using GMM bootstrapping methods,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 15(4), pages 401-416.
- Dahlberg, Matz & Johansson, Eva, 1997. "An Examination of the Dynamic Behavior of Local Governments Using GMM Bootstrapping Methods," Working Paper Series 1997:11, Uppsala University, Department of Economics.
- James M. Poterba, 1993.
"State Responses to Fiscal Crisis: The Effects of Budgetary Institutionsand Politics,"
NBER Working Papers
4375, National Bureau of Economic Research, Inc.
- Poterba, James M, 1994. "State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 799-821, August.
- Thiess Buettner, 2007. "Equalization Transfers and Dynamic Fiscal Adjustment: Results for German Municipalities and a US-German Comparison," Working Papers 2007-07, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
- Pesaran, M. H. & Shin, Y., 1997.
"Generalised Impulse Response Analysis in Linear Multivariate Models,"
Cambridge Working Papers in Economics
9710, Faculty of Economics, University of Cambridge.
- Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
- Lutkepohl, Helmut & Reimers, Hans-Eggert, 1992. "Granger-causality in cointegrated VAR processes The case of the term structure," Economics Letters, Elsevier, vol. 40(3), pages 263-268, November.
- Mörk, Eva & Sjögren, Anna & Svaleryd, Helena, 2009.
"Cheaper Child Care, More Children,"
IZA Discussion Papers
3942, Institute for the Study of Labor (IZA).
- Mörk, Eva & Sjögren, Anna & Svalelryd, Helena, 2008. "Cheaper child care, more children," Working Paper Series 2008:29, IFAU - Institute for Evaluation of Labour Market and Education Policy.
- Eva Mörk & Anna Sjögren & Helena Svaleryd, 2009. "Cheaper Child Care, More Children," Working Papers 2009/2, Institut d'Economia de Barcelona (IEB).
- von Hagen, Jurgen & Eichengreen, Barry, 1996. "Federalism, Fiscal Restraints, and European Monetary Union," American Economic Review, American Economic Association, vol. 86(2), pages 134-138, May.
- Matz Dahlberg & Eva Johansson, 1998. "The revenues-expenditures nexus: panel data evidence from Swedish municipalities," Applied Economics, Taylor & Francis Journals, vol. 30(10), pages 1379-1386.
- Downes, Thomas A. & Dye, Richard F. & McGuire, Therese J., 1998. "Do Limits Matter? Evidence on the Effects of Tax Limitations on Student Performance," Journal of Urban Economics, Elsevier, vol. 43(3), pages 401-417, May.
- Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003.
"Testing for unit roots in heterogeneous panels,"
Journal of Econometrics,
Elsevier, vol. 115(1), pages 53-74, July.
- Tom Doan, "undated". "IPSHIN: RATS procedure to implement Im, Pesaran and Shin panel unit root test," Statistical Software Components RTS00098, Boston College Department of Economics.
- Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
- Robert Inman, 2001. "Transfers and Bailouts: Institutions for Enforcing Local Fiscal Discipline," Constitutional Political Economy, Springer, vol. 12(2), pages 141-160, June.
- Sachs, Jeffrey & Sala-i-Martin, Xavier, 1992.
"Fiscal Federalism and Optimum Currency Areas: Evidence for Europe from the United States,"
CEPR Discussion Papers
632, C.E.P.R. Discussion Papers.
- Xavier Sala-i-Martin & Jeffrey Sachs, 1991. "Fiscal Federalism and Optimum Currency Areas: Evidence for Europe From the United States," NBER Working Papers 3855, National Bureau of Economic Research, Inc.
- Francesc Trillas, 2008. "Regulatory federalism in network industries," Working Papers 2008/8, Institut d'Economia de Barcelona (IEB).
- Javier Suarez Pandiello, 1999. "Fiscal federalism in Spain. The decentralisation: an unfinished work," Económica, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 0(3), pages 7-39.
- Jordi Jofre-Monseny & Albert Sole-Olle, 2010. "Tax Differentials in Intraregional Firm Location: Evidence from New Manufacturing Establishments in Spanish Municipalities," Regional Studies, Taylor & Francis Journals, vol. 44(6), pages 663-677.
When requesting a correction, please mention this item's handle: RePEc:bar:bedcje:2009226. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Espai de Recerca en Economia)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.