Financial infrastructure and house prices

We argue that banks operating in a local market possess better information about the local housing market than do nonlocal banks. Possessing this information may influence their willingness to grant loans to house buyers and the specifics of the loan terms, which in turn may affect house prices because credit facilitation makes the housing market more efficient. Using a panel data set covering a period from 1993 to 2007 and involving 274 municipalities in Sweden, we establish a positive causal influence of local bank presence on local house prices. There are significant spatial and spillover effects, that is, banks in a municipality affect the housing markets in neighbouring municipalities, although to a lesser extent than in their own municipality. Similar results are obtained through a gravity model. The results are robust over time and municipality size.     

Spatial fiscal interactions among French municipalities within inter-municipal groups

Based on a unique data set of French municipalities and a large number of budgetary variables, we estimate the extent of spatial fiscal interaction among the 33,484 French municipalities in 2008 by accounting for inter-municipal cooperation. Using a spatial autoregressive model with inter-municipal group fixed effects, we show that spatial interactions among French municipalities are inflated by correlated effects that affect similarly municipalities that cooperate together. Removing these confounding effects leads to considerably smaller positive spatial interactions for tax decisions and even negative ones for capital expenditures. In addition, we observe a clear distinction between complementary choices on current budget items and substitutable choices on capital budget items.     

ON THE DETERMINANTS OF LOCAL TAX RATES: NEW EVIDENCE FROM SPAIN

This article examines the determinants of local tax rates. For the two main local taxes in Spain—the property tax and the motor vehicle tax—we test the existence of tax mimicking, yardstick competition, and political trends in a sample of 2,713 municipalities. Using various spatial models, the results support the hypothesis of tax mimicking, with coefficients above 0.40. We also show the relevance of political variables such as the ideology of incumbents and political fragmentation. The fact that incumbents with weaker political support exhibit stronger mimicking behavior is interpreted as evidence in favor of yardstick competition. Finally, we find that incumbents mimic neighboring municipalities ruled by the same political party, confirming the political trends hypothesis. (JEL C31, H71, H77)     

The dynamic adjustment of local government budgets: does Spain behave differently?

The aim of this article is to analyse 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 to 2006. Our results confirm that Spanish municipalities do indeed make adjustments in response to fiscal shocks (i.e. the deficit is stationary in the long run). We compare our results with those obtained for US and Germany to evaluate if the viability of local finance depends on the institutional arrangement and to analyse how it affects the adjustment patterns. We observe that grants have a more important role in the adjustment process in environments where either they have an equalization objective or where there is no clear rule that determines their distribution. This fact can generate a moral hazard problem: governments tend to spend more due to the expected intervention by the central government. Own revenues have a lower adjustment capacity in environments where subcentral governments have limited fiscal autonomy. These results, however, suggest that the viability of the local finance system is feasible with different institutional arrangements.     

产军协同、政府科技支持与技术创新效率研究

运用空间数据分析方法,检验产军协同、政府科技支持与技术创新效率在我国省域间的分布格局。研究表明,三者均存在显著的正向空间相关性,即正向空间溢出效应,并且在不同地区形成局部空间集聚,存在高低非均衡的“俱乐部”现象。基于空间误差模型和空间滞后模型,实证检验产军协同、政府科技支持对技术创新效率的影响。结果发现,从全国和分地区看,产军协同、政府科技支持均能够显著促进技术创新效率提升,并且二者存在显著的交互作用,能够发挥彼此间的互补效应,进一步促进技术创新效率提升;不同地区产军协同、政府科技支持对技术创新效率的影响程度存在较大差异,西部地区产军协同、政府科技支持对技术创新效率的促进作用比东部和中部地区显著。     

Newspaper Circulation and Local Government Efficiency*

In this paper, we examine the role of the newspaper market for a key aspect of political accountability: the efficient use of public funds by elected politicians. Newspapers are a major provider of the political information voters use to monitor their elected officials, especially at the local level. Thus, the incentives for politicians to reduce budgetary slack should be stronger in jurisdictions where the electorate is well informed by newspapers. Using panel data on the circulation of some 150 newspapers in Norwegian municipalities, we show that increases in local newspaper circulation are associated with higher levels of local government efficiency.     

A two-methodology comparison study of a spatial gravity model in the context of interregional trade flows

This article argues that the introduction of spatial interactions to model the determinants of origin-destination (OD) flows can potentially result in excessive contiguity. To explain flows between OD regions, it is not only what happens in the origin and destination that is relevant, but also what happens in their neighbouring regions. However, what happens if there is a high degree of overlap between origin neighbouring areas and destination neighbouring areas? The article presents an empirical illustration to re-examine the evidence presented in previous research (Alamá-Sabater et al., 2013) and more closely analyses the territorial level, focusing on the case of interregional trade of goods at the NUTS3 level (Spanish provinces). We then use two different methodologies within the framework of a spatial gravity equation for interregional trade modelling. The findings confirm the importance of spatial dependence on trade flows and in particular that logistics decisions within a province affect shipments from contiguous provinces.     

Assist or desist? Conditional bailouts and fiscal discipline in local governments

Central government bailouts of local governments are commonly viewed as a recipe for local fiscal indiscipline, as local governments learn that the center will come to the rescue in times of trouble. However, little is known about the consequences of bailouts granted conditional on local governments first making efforts to improve the situation. We examine a case in which the Swedish central government provided conditional grants to 36 financially troubled municipalities. We use the synthetic control method to identify suitable comparison units for each of the 36 municipalities. To compare the development of costs and the fiscal surplus of admitted municipalities to that of their most similar counterparts during the decade after the program, we then estimate fixed effects regressions on the resulting sample. The analysis suggests that conditional bailouts did not erode, and may even have improved, fiscal discipline.     

Political preferences and public sector outsourcing

Given the intensive and ideologically charged debate over the use of private contractors for publicly funded services, it is somewhat surprising that many social scientists have preferred to explain government outsourcing by the pursuit of economic efficiency. Starting out from different theories, we investigate political explanations of government outsourcing using a Swedish data set in which outsourcing varies between municipalities and over time, as well as between services. Our identification strategy focuses on two services with similar contracting problems and local market conditions: preschools and primary schools. We study a period in which Swedish municipalities had full discretion in the provision of preschools, while their influence on the private provision of primary education was limited by a national voucher system. The comparison of preschools with primary schools in a difference-in-differences model suggests that the political color of the ruling majority influences outsourcing, which is consistent with the Citizen Candidate model of representative democracy.     

Strategic Interaction Among Local Governments in Japan: An Application to Cultural Expenditure

In the context of limited local government resources, cultural expenditures are often targeted for reduction. In Japan in particular, with its aging population, cultural expenditures have low priority. This paper examines whether or not local governments strategically influence each other with respect to cultural spending, using data from Japanese local governments. By estimating the reaction functions for local cultural expenditures, we find that there exists free‐rider behaviour between local cultural expenditures that produce beneficial spillover effects. We also find a larger free‐rider incentive the shorter the distance between neighbouring regions, the shorter the travel time between neighbouring regions, and the larger the neighbouring region's population. Furthermore, our results reveal that the provision of cultural services through intergovernmental strategic behaviours is more elastic with respect to the relative change of the distance or the travel time among neighbouring regions than to that of the population size among neighbouring regions.     

Does accrual accounting improve municipalities’ efficiency? Evidence from Germany

The stressed financial situation in the public sector and the continuous aspiration for austerity in western governments and public bodies is omnipresent. As one core element in the New Public Management shift, Germany, like many other countries, has experienced significant reforms in public sector accounting and reporting in the last decade. We analyse the effect of new accounting and budgeting regimes. We therefore analyse the cost efficiency of German local governments in the state of North Rhine-Westphalia over 3 years using a stochastic frontier approach. This study presents evidence for increased efficiency amongst municipalities due to the adoption of accrual accounting.     

How to tame two Leviathans? Revisiting the effect of direct democracy on local public expenditure in a federation

We explore how the presence of direct democracy across hierarchical levels of government in a federation affects the level of public expenditure. In so doing we revisit the effect of direct democratic institutions on public policies. Particularly, we are interested whether the effect of upper-level (state) direct democratic institutions on lower-level expenditure varies with lower-level direct democracy. Empirically, we exploit the large institutional variation in the degree of direct democracy both for state (cantons) and local governments (municipalities) in Switzerland. Considering 119 municipalities belonging to 22 cantons for the period 1993–2007, we find that the cantonal fiscal referendum increases local spending for those municipalities without fiscal referenda, while this effect is significantly reduced for municipalities that also avail of referenda. This suggests that upper-level fiscal restraint can be undone by lower-level profligacy if direct-democratic control is limited to the upper level.     

Decentralisation of active labour market policy: The case of Swedish local employment service committees

Decentralisation of decision-making in labour market policy may increase efficiency, since local authorities have first-hand knowledge about local labour market problems. However, decentralisation may also be associated with fiscal externalities generating misallocation. The purpose of this study is to examine the effects of a Swedish pilot programme in 1996, which strengthened the role of the local authorities in labour market policy in certain regions. Our econometric findings do not indicate any increase in geographical lock-in of the unemployed, but decentralisation seems to spur local initiatives in the form of projects organised by the municipalities and increase targeting on outsiders in the labour market. The latter result is consistent with the hypothesis that municipalities used their increasing influence in order to improve municipal budgets at the expense of the central government.     

More Than You Can Handle: Decentralization and Spending Ability of Peruvian Municipalities

This article builds on a comprehensive dataset for Peru that merges municipal fiscal accounts with information about municipalities’ characteristics such as population, poverty, education, and local politics to analyze the leading factors affecting the ability of municipalities to execute the allocated budget. According to the existing literature and the Peruvian context, we divide these factors into four categories: the budget size and allocation process; local capacity; local needs; and political economy constraints. While we do find that all four factors affect decentralization, the largest determinant of spending ability is the adequacy of the budget with respect to local capacity. The results confirm the need for decentralization to be implemented gradually over time in parallel with strong capacity building efforts.     

Direct democracy and local government efficiency

This paper studies the role of direct democracy in ensuring efficient and cost-effective provision of goods and services in the public sector. The sample consists of the population of municipalities in the German State of Bavaria, where in the mid-1990s considerable direct democratic reforms granted citizens wide opportunities to directly participate in local affairs through binding initiatives. Using information on the municipal resources and the municipal provision of public goods, and applying a fully non-parametric approach to estimate local government overall efficiency, the analysis shows that more direct democratic activity is associated with higher government efficiency. This result suggests that more inclusive governance through direct decision-making mechanisms may induce more accountable and less inefficient governments.     

The effects of inter-municipal cooperation and central grant allocation on the size of the French local public sector

The analysis of French municipalities’ public personnel expenditures allows us to study the issue of the size of the local public sector. We concentrate on two paths that French authorities have followed to limit it, i.e., the promotion of inter-municipal cooperation (IMC) and the cut in grants received by municipalities. Our objective is to evaluate their respective role in the evolution of public personnel expenditures at the municipal level, in a context where local politics comes into play. We consider a large panel dataset of municipalities embedded in IMC structures between 2011 and 2018. Our main results, obtained using an original identification strategy, are threefold. We first find evidence that a substitution effect between municipal and IMC personnel expenditures is at work. Second, we find a partisan distorsion through the grant allocation: despite its formula-based definition, aligned and unaligned municipalities are treated differently by the central government. Third, we show that cuts in grants lead to cuts in municipalities’ public wage bills, while partisanship hinders such cuts.     

Political budget cycles and reelection prospects in Greece's municipalities

This paper considers the presence of political budget cycles in Greece's municipalities. We construct a new dataset from primary sources and we find strong evidence of pre-electoral manipulation through increased expenditures and excessive borrowing. We use a dynamic panel data approach producing evidence of opportunistic behavior in local government finances. Our results are robust in the face of a series of controls including mayors running for reelection, their political alignment with the central government, and prolonged terms. Moreover, the results are robust to the exclusion of small sized municipalities and to the restriction of the time range of our investigation to the post-Maastricht period. We also consider whether opportunistic policies influence incumbents' reelection prospects finding that increased expenditures and election year opportunistic excesses are electorally rewarding. Our findings provide a characterization of opportunistic public finance management in Greek municipalities where electorally motivated budgetary decisions appear impervious to the various municipal reform attempts.     

Tax policy and yardstick voting in Flemish municipal elections

Recent theoretical papers develop political agency models in which voters compare tax policy with that in neighbouring jurisdictions. In these yardstick competition models voters judge incumbents by comparing their policy with policy in neighbouring jurisdictions. This paper reports an analysis of municipal elections in Flanders during the period 1982 to 2000 and finds empirical evidence for yardstick voting. Incumbents are punished for higher tax rates. Importantly, the electoral punishment also depends on tax rates in neighbouring municipalities. Higher rates in neighbouring municipalities are favourable for the incumbents.     

Value for money? German local government efficiency in a comparative perspective

In this article, we investigate the cost efficiency of German local governments in the state of Baden-Württemberg in 2004 using a stochastic frontier approach. Besides being the first study on German data, we add two elements to the literature. First, we provide a comparative perspective, allowing us to embed our results in the broader literature. Second, unlike most previous studies, we explicitly account for exogenous or nondiscretionary influences when estimating municipal efficiency scores. The results suggest that disregarding such exogenous factors can lead to significant and systematic bias in the estimated inefficiency levels. Particularly, underestimation of efficiency occurs for municipalities with high tourist activity, while the reverse is true for municipalities with high unemployment.     

The Effect of Political Alignment on Transfers to Portuguese Municipalities

I investigate if political alignment between central and local governments brings financial benefit to local governments, using financial data from Portuguese municipalities (1992–2005). I use regression discontinuity design to determine the effect of political alignment per se on transfers to municipalities. Municipalities aligned with the central government receive 19% more targetable transfers than unaligned municipalities. I test for electoral motivation of this transfer bias: extra transfers increase the vote share of incumbents in local elections for one of the two Portuguese major parties; however, municipal incumbency does not lead to better results in national elections.