ARE LOCAL GOVERNMENTS GOVERNED BY FORWARD-LOOKING DECISION-MAKERS - AN INVESTIGATION OF SPENDING PATTERNS IN SWEDISH MUNICIPALITIES

In this paper we investigate the extent to which local government cons umption in Sweden is determined by permanent rather than current resou rces. Evidence from a panel of municipalities indicates that most cons umption (90% or more) is associated with permanent resources. That is, spending decisions on nondurable goods and services in Swedish munici palities are to a very high degree determined by rational, forward loo king decision makers. This result contrasts sharply with the common vi ew that local governments do not act intertemporally. One policy impli cation is that it can be difficult for the central government to condu ct stabilization policy by influencing the municipalities' current res ources. (C) 1998 Academic Press.