An examination of the dynamic behaviour of local governments using GMM bootstrapping methods

Even though recent Monte Carlo evidence has shown that the use of bootstrap critical values, instead of asymptotic ones, improves the size of the test s substantially, empirical applications using GMM bootstrap techniques are largely missing. In this paper, the dynamic relationship between local gove rnment revenues and expenditures is re-investigated using GMM bootstrapping techniques on a panel of 265 Swedish municipalities over the period 1979-1 987. A lag of one year is found in the expenditures equation, while no dyna mics is found in the own-source revenues and grants equations. These result s, while contrasting sharply with those obtained when asymptotic critical v alues are used, are well in line with the theoretical explanations given in the literature for dynamic behaviour in the local public sector. Copyright (C) 2000 John Wiley & Sons, Ltd.