The impact of regional public expenditures on the local decision to spend

This paper studies the hypothesis that local (municipal) expenditures in pa rt can be explained by the expenditures of the regional (county) government . To accomplish this task, we derive and estimate a model of local public ( municipal) spending that is defined conditional on the level of regional pu blic expenditures. The empirical analysis is based on panel data from the S wedish local public sector for the time period 1981-1986. Among the results , we find that the hypothesis that regional expenditures are weakly separab le from local expenditures can be rejected. However, we cannot reject the h ypothesis that the regional expenditures are weakly exogenous in the local expenditure equation. (C) 2000 Elsevier Science B.V. All rights reserved.