Calculating fiscal impacts where spatial effects are present

Abstract

An important policy question concerns the impact that changing urban land uses have on the provision of local public goods. This questions has been investigated by Heikkila and Craig (1991, Journal of Regional Science 31, 65–81) for the case of policing services in Vancouver, Canada. However, their empirical analysis does not allow for the possibility of a spatially dependent error structure in the model, although it has been well established in both theory and practice that spatial autocorrelation can lead to inefficient estimators in regression analysis. Using the same data employed by Heikkila and Craig, we find that spatial effects are indeed present but do not affect our measures of impact in any important way. We conclude that spatial effects may be more important where one's emphasis is on ascertaining the parameters of the underlying model, but less important where the focus of enquiry is on fiscal impact.