Abstract
This paper investigates determinants of local authorities’ school expenditure. Hypotheses are derived from an expenditure demand model incorporating a school cost function. The empirical analysis exploits the panel structure of the dataset (for the 275 municipalities in Denmark over the period 1984–1996) by Generalized Method of Moments estimation of a dynamic model taking into account unobserved municipal-specific effects and possible endogeneity of the explanatory variables. Comparing with more standard estimations of the model, the results indicate that flexible estimation of a dynamic model controlling for unobserved municipal-specific effects is needed to avoid biased parameter estimates.
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