Quality of government and economic growth at the municipal level: Evidence from Spain

This paper analyzes the relationship between quality of government and economic growth at the municipal level in 1,820 Spanish municipalities during the period 2008–2015. At this level of dis- aggregation, the literature is virtually non-existent due to severe data constraints. To address this limitation, we proxy institutional quality with a measure of local government efficiency, which provides an accurate indicator of how good local authorities are at managing their budgets. This variable is expected to be highly correlated with other more traditional quality of government indicators such as corruption. After computing our measure, we then use it in a growth regression framework. We find a preponderant positive effect for local government quality on income per capita growth, which is robust to a wide variety of scenarios. Our findings also suggest that increases in local government quality are particularly rewarding for the poorest municipalities and in crisis times.