Local Public Expenditures Research Articles

Fueling fiscal interactions: commodity price shocks and local government spending in Colombia

This paper explores fiscal interactions in a developing country. We analyze whether public expenditures in neighboring municipalities influence local spending decisions within a comprehensive set of expenditure categories. Our analysis is based on panel data covering the universe of Colombian municipalities from 2000 to 2010. We offer a quasi-experimental identification strategy exploiting exogenous variation in municipalities’ exposure to changes in the world market price of oil, depending on the municipalities’ endowment with oil resources and controlling for municipality fixed effects. While we find evidence of strong spatial autocorrelation of total local public spending as well as in almost all expenditure categories, the quasi-experimental approach reveals that there are no significant causal fiscal interaction effects between municipalities. This highlights the importance of using additional sources of exogenous variation for the identification of fiscal interactions. In the developing country context, our findings suggest that fiscal decentralization policies do not lead to a race to the bottom in local public expenditures.

Local Public Expenditure, Public Service Accessibility, and Housing Price in Shanghai, China

The level of public service accessibility differs by residential locations. Existing literature has documented the effects of public service accessibility on housing prices. However, few studies have examined how public service provision affects housing prices under the Chinese centralized governance system. Using data from different geographic scales, this study uses a multilevel research design to examine how public service provision is associated with housing prices in Shanghai. Results show that though the total expenditure at the urban district level is not related to housing prices, government redistributive expenditure is positively associated with housing price and the developmental expenditure is on the opposite. The expenditure effects are further mediated by the accessibility to public facilities at the community level. The findings suggest that, as public service accessibility has been capitalized into housing prices, the decentralized fiscal system with relatively centralized governance structure may have reinforced urban polarization in Shanghai.

The Different Impacts of Central and Local Public Expenditure on Consumption under the Perspective of Fiscal Decentralization

China economic development has entered a new normal. Consumption plays a more and more important role in promoting economy. Based on the empirical statistics, we adopted the VEC model to analyze the dynamic linkages and influences between public expenditure and consumption. The conclusion is there are different impacts between central and local public expenditure, and in the long run, only the latter has a strongly positive effect on consumption. So trying to coordinate the relationship between central and local finance is of vital importance under the background of economic transition.

Getting what we vote for: A regression discontinuity test of ballot initiative outcomes

What do voters really receive when they vote? This paper exploits 25 years of municipal level voting data in Massachusetts to identify the specific effects of voter approved ballots. In particular, this analysis attempts to determine the degree to which the median voter preferences are reflected in public expenditures. The findings suggest that voters see little change in expenditures, regardless of voting outcomes. To my knowledge, this paper is the first of its kind to directly link voting outcomes with non capital expenditure outcomes. This has important implications for discussing frictions that arise between voter preferences and local public expenditures.

The twilight of the setter? Public school budgets in a time of institutional change

AbstractWe use a policy change that occurred in Oregon in the late 1980s to re‐visit the budget‐maximizing agenda setter theory of local public expenditure. Prior to 1987, Oregon school districts held operating levy elections with an exogenous, often zero or very low, spending reversion. From 1987 through 1990, districts experienced a “safety net” regime where the reversion was at least the previous year's nominal spending. We find that the “safety net” sharply limited the agenda setter's ability to use the reversion as a threat to obtain voter approval of relatively large expenditures.

The Effect of Immigration on Local Public Finances

I investigate the relationship between immigration and local public finances, exploiting variation in immigration inflows across local labour markets and data on local government revenues and expenditures. I find that increases in immigration did not result in any change to local government revenues. This is not explained by offsetting decreases in revenues from local sourcs and increases from state-level intergovernmental transfers. Finally, I demonstrate that the lack of impact on revenues similarly implies that immigration does not have an effect on local public expenditures. The findings suggest that immigration does not act as a drain on local public finances.

Governmental Spending on Public Cultural Services: Efficiency and Influencing Factors Analysis Based on DEA-Tobit

Based on the panel data of provinces in China from 2000 to 2015, this article explores the efficiency of local government spending on public cultural services and its influencing factors under the DEA-Tobit two-stage analysis framework. First, the comprehensive efficiency, pure technical efficiency and scale technical efficiency of local government public cultural expenditure were measured through the data envelopment analysis method (DEA). On the basis of the first step analysis, we use Tobit model with the limited dependent variable to study the relationship between the efficiency evaluation results and policy variable such as fiscal decentralization, cultural policy, the relationship between the efficiency evaluation results and social factors like per capita GDP, population density and residents’ educational level etc. Through the analysis of the evaluation results, it is found that there were significant differences in the local efficiency on public cultural expenditure in China. The effects of population density, urbanization level, per capita GDP and illiteracy rate on the efficiency of government public cultural expenditure are positive. After controlling population, economic and social factors, the effect of fiscal decentralization on the efficiency of public cultural expenditure is negative, and cultural policy has significantly promoted the efficiency of Chinese local government cultural expenditure.

Fiscal Competition Among Local Governments after Fiscal Decentralization

Spatial interaction among local governments in fiscal setting decisions is receiving increasingly attention in the applied public economics literature. Spatial interaction models rely on the presence of an externality from local budget making, that is external effects originate from inter-jurisdictional resource flows due to tax competition for a mobile base, or from local public expenditure spillovers into neighboring jurisdictions. Similarly, the intergovernmental grants competition exists when there is a rivalry among local governments to get them from central government. This paper attempted to identify how great the fiscal competition among local governments in Indonesia. Using spatial statistics, we concluded that the fiscal competition among municipalities was greater compared to the pre fiscal decentralization period. It seems that the local tax setting and expenditures decisions in particular municipality can be attributed to the mimicking behavior to neighbor regions. Also, we found that the fiscal competition among municipalities could be attributed negatively to the fiscal disparity. Those imply that in the regional autonomy era the local governments tend to increase their local own revenue intensively and demand for intergovernmental grants in order to finance their expenditures. In the long run, they could lead to the high cost economy, worsening fiscal dependency, and inefficiency of local government expenditures. Those findings above suggest that the distribution of intergovernmental transfers among regions should consider the local tax effort and the services minimum standard plays an important role to achieve the efficiency of local government expenditures.

Ideology and Local Public Expenditure Priorities

Local governments prioritize spending on various types and levels of public services. Although scholars have shown that citizen preferences and institutional factors, such as economic, political, and legal arrangements, play a role in resource allocation, scholars have not systematically examined the impact of local elected officials’ own ideological preferences on service prioritization. A better understanding of the impact of personal ideology on local government resource allocation is needed as this provision of funds has implications for democratic governance and responsiveness. We develop and use a novel measure of local elected official ideology using a 2011 survey of California local elected officials to test the hypothesis that local decision-maker ideology affects attitudes on funding-specific service categories. We find evidence that local elected officials’ attitudes toward service reductions are associated with both their own individual ideology, measured on the conservative–liberal spectrum, and the ideology of their constituents.

The (Mis-) Measurement of Fiscal Decentralization in Developing and Transition Countries

There is an extensive literature on the impact of fiscal decentralization on economic growth, development, and public sector effectiveness. However, the empirical literature on fiscal decentralization has exclusively focused on measuring the finances of elected or “devolved” local governments. Other types of decentralized expenditures, including deconcentrated and delegated expenditures, have been systematically excluded from measurement and analysis in the public finance and development literature. Our analysis considers the extent to which using devolved expenditures as a proxy for all devolved expenditures may have impacted the findings of the empirical literature. We collect comprehensive vertical expenditure profiles for health and education services in twenty-nine developing and transition countries and find that by exclusively focusing on devolution, previous analyses have overlooked two-thirds of local public sector expenditures. By excluding these “nondevolved” decentralized expenditures, the previous (often inconclusive) empirical analyses are likely to have suffered from omitted-variable bias.

Assessment of Financial Capabilities of Local Governments in EU Countries for the Development of Local Public Services

Local financing in advanced countries enables local governments to assess real local priorities as well as limitations. The present paper deals with financial capabilities of local governments for the development of public services, local government expenditure and fiscal expenditure decentralization in the EU28. By use of cluster analysis, local public expenditures are assessed by selected COFOG functions, as % of total local government expenditures in years 2010-2013. The results proved the largest differences in the set of countries in local government expenditures on social protection and the smallest differences in local expenditures on recreation and cultures, housing and community amenities.

The distance between Buchanan's “An Economic Theory of Clubs” and Tiebout's “A Pure Theory of Local Public Expenditures”. New insights based on an unpublished manuscript

This article introduces Buchanan's comment on Tiebout's “A Pure Theory of Local Public Expenditures”. It helps us to understand the nature of the relationship between Buchanan and Tiebout. Usually, it is claimed that Buchanan modelled Tiebout's insights, that there exists a Buchanan-Tiebout hypothesis, and that Buchanan in 1965 complemented what Tiebout had written in 1956. We show that Buchanan could not have written “An Economic Theory of Clubs” as a complement of “A Pure Theory of Local Public Expenditures”. He disagreed with Tiebout's ideas on mobility because he saw mobility as a cause of inefficiencies and not a cause of homogeneity in groups. This is what we show by putting Buchanan's comment on Tiebout into historical perspective. It appears that Buchanan interpreted Tiebout 1956 from the perspective of his works on fiscal federalism from the early 1950s. We show that there is a continuity between Buchanan's work from the early 1950s and his works in the early 1970s; and Buchanan's way of reading Tiebout is part of it. Hence, when he wrote “An Economic Theory of Clubs”, Buchanan was convinced that Tiebout was wrong and that he was offering an alternative framework for public economics.

The Tiebout Hypothesis in Africa: Evidence from Angola

AbstractThis paper analyses the Tiebout hypothesis in Angola's provinces from 2004 to 2013, using a spatial panel data model. The Tiebout hypothesis, which states that a country's internal migration is dictated by regional public policy, is tested. Angola's internal inter‐provincial migration is related to gross domestic product per capita, local public expenditure, unemployment, poverty, population density, the number of public employees in the region, and a NGO for civic education. The results reveal that spatial autocorrelation is a reality in the Angolan context, validating the adoption of a spatial model, and that regional migration is explained by the covariates. The general conclusion is that the Tiebout hypothesis is accepted in the Angolan regions, and that the most important cause of migration is regional poverty. Policy implications are derived and it is concluded that an efficient anti‐poverty policy is needed in the Angolan context at regional level in order to decrease internal migration.

Risk factors for hospitalisation and associated costs among patients with hepatitis A associated with imported pomegranate arils, United States, 2013

ObjectivesTo assess hospitalisation risk factors and economic effects associated with a multistate hepatitis A outbreak in 2013. Study designRetrospective case series. MethodsEligible outbreak-related cases confirmed by September 1, 2013, were defined as acute hepatitis symptoms and positive IgM anti-hepatitis A during March 15–August 12 among patients who consumed the food vehicle or had the outbreak genotype. We reviewed medical records, comparing demographic and clinical characteristics among hospitalized and non-hospitalized patients; we used logistic regression analysis to identify factors associated with hospitalization. We interviewed patients regarding symptom duration and healthcare usage and estimated per-patient and total costs. Health departments reported outbreak-related personnel hours. ResultsMedical records were reviewed for 147/159 (92%) eligible patients; median age was 48 (range: 1–84) years, and 64 (44%) patients were hospitalized. Having any chronic medical condition was independently associated with hospitalisation (odds ratio, 3.80; 95% confidence interval, 1.68–8.62). Interviews were completed for 114 (72%) eligible patients; estimated per-patient cost of healthcare and productivity loss was $13,467 for hospitalized and $2138 for non-hospitalized patients and $1,304,648 for all 165 outbreak-related cases. State and local public health personnel expenditures included 82 h and $3221/outbreak-related case. ConclusionsHospitalisations in this outbreak were associated with chronic medical conditions and resulted in substantial healthcare usage and lost productivity. These data can be used to inform future evaluation of expansion of hepatitis A vaccination recommendations to include adults with chronic medical conditions.

The Distance between Buchanan's 'An Economic Theory of Clubs' and Tiebout's 'A Pure Theory of Local Public Expenditures'. New Insights Based on an Unpublished Manuscript

This article introduces Buchanan's comment on Tiebout's A Pure Theory of Local Public Expenditures. It helps us to understand the nature of the relationship between Buchanan and Tiebout. Usually, it is claimed that Buchanan modeled Tiebout's insights, that there exists a Buchanan-Tiebout hypothesis, and that Buchanan in 1965 complemented what Tiebout had written in 1956. We show that Buchanan could not have written An Economic Theory of Clubs as a complement of A Pure Theory of Local Public Expenditures. He disagreed with Tiebout's ideas on mobility because he saw mobility as a cause of inefficiencies and not a cause of homogeneity in groups. This is what we show by putting Buchanan's comment on Tiebout into historical perspective. It appears that Buchanan interpreted Tiebout (1956) from the perspective of his works on fiscal federalism from the early 1950s. We show that there is a continuity between Buchanan (1950) and his works in the early 1970s; and Buchanan's way of reading Tiebout is part of it. Hence, when he wrote An Economic Theory of Clubs, Buchanan was convinced that Tiebout was wrong and that he was offering an alternative framework for public economics.

Le specificità dei processi di revisione della spesa pubblica locale

The article analyses the specific features of procedures in medium-large Italian municipalities. The author recalls as the local public expenditures is oriented, more than in all other sectors of Public Administration, to directly enhance the welfare of citizens, and it has direct effects on potential growth of the local territory where the municipality is working. The work emphasizes the implications of spending review in terms of quantitative and qualitative levels of public service and in terms of investments on local infrastructures maintenance. It presents the case of Florence municipality that has applied spending review procedures in 2012 and 2013. Finally, it deals with the perspectives for these procedures by the public accountancy reform recently carried on in Italy.

Revisiting the Relation Between Decentralization and Growth in the Context of Marketization

Decentralization in countries in transition did not take place in isolation from other marketization reforms. Although the latter have been shown to support growth, the literature on fiscal decentralization and growth is not conclusive. Our work revisits this relationship within the wider context of reform. This article uses a generalized method of moments (GMM) on a panel of eighteen East European countries in transition for the period 2002–2008. We show that decentralization has a positive impact on growth conditional to local government’s autonomy to manage the structure of local public expenditure toward its recurrent component to open the way for more private sector engagement in service delivery. Moreover, our results confirm the reverse causality between local financial indicators and growth: A higher level of growth leads to a lower level of government intervention and a smaller public sector, which confirm previous results.

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.

Informal Institutions, Collective Action, and Public Investment in Rural China

Do informal institutions, rules, and norms created and enforced by social groups promote good local governance in environments of weak democratic or bureaucratic institutions? This question is difficult to answer because of challenges in defining and measuring informal institutions and identifying their causal effects. In the article, we investigate the effect of lineage groups, one of the most important vehicles of informal institutions in rural China, on local public goods expenditure. Using a panel dataset of 220 Chinese villages from 1986 to 2005, we find that village leaders from the two largest family clans in a village increased local public investment considerably. This association is stronger when the clans appeared to be more cohesive. We also find that clans helped local leaders overcome the collective action problem of financing public goods, but there is little evidence suggesting that they held local leaders accountable.

Local health department food safety and sanitation expenditures and reductions in enteric disease, 2000-2010.

In collaboration with Public Health Practice-Based Research Networks, we investigated relationships between local health department (LHD) food safety and sanitation expenditures and reported enteric disease rates. We combined annual infection rates for the common notifiable enteric diseases with uniquely detailed, LHD-level food safety and sanitation annual expenditure data obtained from Washington and New York state health departments. We used a multivariate panel time-series design to examine ecologic relationships between 2000-2010 local food safety and sanitation expenditures and enteric diseases. Our study population consisted of 72 LHDs (mostly serving county-level jurisdictions) in Washington and New York. While controlling for other factors, we found significant associations between higher LHD food and sanitation spending and a lower incidence of salmonellosis in Washington and a lower incidence of cryptosporidiosis in New York. Local public health expenditures on food and sanitation services are important because of their association with certain health indicators. Our study supports the need for program-specific LHD service-related data to measure the cost, performance, and outcomes of prevention efforts to inform practice and policymaking.