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Urban sprawl and municipal budgets in Spain: a dynamic panel data analysis

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  • Miriam Hortas-Rico

    () (Universidad Complutense de Madrid & IEB)

Abstract

Urban sprawl has recently become a matter of concern throughout Europe, but it is in southern countries where its environmental and economic impact has been most severe. This low-density, spatially expansive urban development pattern can have a highly marked impact on municipal budgets. Thus, local governments may see sprawl as a potential source of finance, in terms of building-associated revenues and increased transfers from upper tiers of government. At the same time, sprawl leads to increased levels of expenditure, as it may raise the provision costs of certain local public goods and requires greater investment in extending basic infrastructure for new urban development. What, therefore, is the net fiscal impact of urban sprawl? Do local governments consider the long-run net fiscal impact of new urban growth or do they simply focus on its short-term benefits, ignoring future development costs? This paper addresses these questions by analysing the dynamic relationship between urban sprawl and local budget variables. To do so, we estimate a panel vector autoregressive model using data for 4,000 Spanish municipalities for the period 1994-2005. Computed Generalised Impulse Response Functions show: (i) that sprawl considerably increases demand for new infrastructure, (ii) that the capital deficit generated by this new infrastructure is covered in the main by intergovernmental transfers and, to a lesser extent, by revenues linked to the real estate cycle, and (iii) that sprawl leads to a short-term current surplus, as the increase in current revenues offsets the increase in current expenditures due to public service provision for new developments. Overall, these findings point to a moral hazard problem for local governments in which inordinate intergovernmental transfers and development revenues encourage excessive urban sprawl.

Suggested Citation

  • Miriam Hortas-Rico, 2010. "Urban sprawl and municipal budgets in Spain: a dynamic panel data analysis," Working Papers 2010/43, Institut d'Economia de Barcelona (IEB).
  • Handle: RePEc:ieb:wpaper:2010/10/doc2010-43
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    References listed on IDEAS

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    Cited by:

    1. Laura Varela-Candamio & Fernando Rubiera Morollón & Gohar Sedrakyan, 2017. "Urban sprawl and local fiscal burden: analysing the Spanish case," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1721, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    2. Miguel Gómez-Antonio & Miriam Hortas-Rico & Linna Li, 2016. "The Causes of Urban Sprawl in Spanish Urban Areas: A Spatial Approach," Spatial Economic Analysis, Taylor & Francis Journals, vol. 11(2), pages 219-247, June.
    3. Ermini, Barbara & Santolini, Raffaella, 2015. "Differentiated property tax and urban sprawl in Italian urbanized areas," MPRA Paper 65460, University Library of Munich, Germany.
    4. Gianni Guastella & Stefano Pareglio & Paolo Sckokai, 2017. "A Spatial Econometric Analysis of Land Use Efficiency in Large and Small Municipalities," Working Papers 2017.03, Fondazione Eni Enrico Mattei.

    More about this item

    Keywords

    Urban sprawl; local public finance; dynamic panel data;

    JEL classification:

    • H1 - Public Economics - - Structure and Scope of Government
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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