Disparities in the Spending Needs of Highland Municipalities

Abstract

A certain rough consensus holds that highland municipalities have higher spending needs than others, because of the particularly adverse conditions in which they provide essential public services. However, there is no empirical evidence to support this assertion. This study examines whether any relevant differences actually exist in the spending policies of highland and lowland municipalities. To this end, we make logarithmic estimations of per capita municipal spending in order to determine whether the indicators selected, which are based on local government powers, adequately reflect spending needs. Our results point to the special circumstances of highland districts as a key explanatory factor for higher municipal spending, along with demographic factors, locational population patterns, economic activity, subsidies, and local fiscal capacity.