An Investigation into the Intertemporal Spending Path of Local Government in Mauritius

Abstract

This article examines whether local government expenditure in Mauritius is characterised by an intertemporal decision-making path. In other words, to what extent does local government expenditure respond to contemporaneous changes in revenues. In this respect, the article contributes to the existing body of literature by exploring the context of an upper-middle-income country like Mauritius while factoring intertemporal choice in the supply of local public goods. Moreover, the article determines the short-run and long-run responsiveness of local public expenditure to Gross Domestic Product (GDP) through an error correction model based on time series data for Mauritius over the period 1987–2017. Our findings indicate that local government spending becomes less sensitive to its previous values when GDP and its past values are introduced as control variables in the model. Local government expenditure and real output are also found to be co-integrated or to share a long-term relationship. JEL Classification: B22, C1, D9, H4, H11