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Expenditure spillovers and fiscal interactions: Empirical evidence from local governments in Spain

  • Albert Solé Ollé

    ()

    (Institut d'Economia de Barcelona (IEB); Universitat de Barcelona (UB))

The paper presents a framework for measuring spillovers resulting from local expenditure policies. We identify and test for two different types of expenditure spillovers: (i) "benefit spillovers", arising from the provision of local public goods, and (ii) "crowding spillovers", arising from the crowding of facilities by residents in neighboring jurisdictions. Benefit spillovers are accounted for by assuming that the representative resident enjoys the consumption of a local public good in both his own community and in those surrounding it. Crowding spillovers are included by considering that a locality's consumption level is influenced by the population living in the surrounding localities. We estimate a reaction function, with interactions between local governments occurring not only between expenditure levels, but also between neighbors' populations and expenditures. The equation is estimated using data on more than 2,500 Spanish local governments for the year 1999. The results show that both types of spillovers are relevant.

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Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2005/3.

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Length: 41 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:ieb:wpaper:330932art1
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  1. Le Grand, Julian, 1975. "Fiscal Equity and Central Government Grants to Local Authorities," Economic Journal, Royal Economic Society, vol. 85(339), pages 531-47, September.
  2. Arnott, Richard & Grieson, Ronald E., 1981. "Optimal fiscal policy for a state or local government," Journal of Urban Economics, Elsevier, vol. 9(1), pages 23-48, January.
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  12. Conley, John & Dix, Manfred, 1999. "Optimal and Equilibrium Membership in Clubs in the Presence of Spillovers," Journal of Urban Economics, Elsevier, vol. 46(2), pages 215-229, September.
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  16. Andrew F. Haughwout, 1999. "Regional fiscal cooperation in metropolitan areas: An exploration," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 18(4), pages 579-600.
  17. Albert Solé-Ollé & Elisabet Viladecans-Marsal, 2004. "Central Cities as Engines of Metropolitan Area Growth," Journal of Regional Science, Wiley Blackwell, vol. 44(2), pages 321-350.
  18. Albert Solé-Ollé & Núria Bosch, 2005. "On the Relationship between Authority Size and the Costs of Providing Local Services: Lessons for the Design of Intergovernmental Transfers in Spain," Public Finance Review, , vol. 33(3), pages 343-384, May.
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