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An Examination of the Dynamic Behavior of Local Governments Using GMM Bootstrapping Methods

Author

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  • Dahlberg, Matz

    (Department of Economics)

  • Johansson, Eva

    (Department of Economics)

Abstract

Recent Monte Carlo evidence has shown that tests based on asymptotic critical values tend to reject a true null too often, while tests based on bootstrap critical values have empirical sizes that are very close to the nominal ones. This casts doubt on the growing number of studies indicating considerable dynamics in local government behavior since they all rely on asymptotic critical values. Using GMM bootstrapping techniques, this paper re-investigates the dynamic interrelationship between local government revenues and expenditures. Further, the results are compared with those obtained using asymptotical critical values. The panel covers 265 Swedish municipalities over the period 1979-1987. A lag of one year is found in the expenditures equation, while no dynamics is found in the own-source revenues and grants equations. These results, while contrasting sharply with those obtained when asymptotic critical values are used, are well in line with the theoretical explanations given in the literature for dynamic behavior in the local public sector.

Suggested Citation

  • 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.
    • Handle: RePEc:hhs:uunewp:1997_011
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    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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