Perks and public provisions : Effects of yardstick competition on local government fiscal behavior in the Philippines

Using a panel dataset from cities and municipalities in the Philippines in 2001, 2004 and 2007, we investigate whether yardstick competition -- measured here as the average spending and revenues of surrounding jurisdictions in the same province -- influence local government fiscal decisions. For local governments with incumbents facing effective term limits, the effects of the yardstick variables are generally nil. For those with incumbents who are eligible for another term, the average total expenditures of surrounding jurisdictions seem to influence the LGU to re-allocate its budget for social and economic services that directly benefit the constituents towards overhead outlays that benefit more the office holders. Local revenue mobilization is stimulated by greater revenue mobilization and dampened by higher average spending in other localities. Central fiscal transfers increase outlays for overheads and for social and economic services These suggests that while the particular yardstick variables used here may have induced reactions from local governments, the resulting changes in fiscal decisions may not have necessarily improved the constituents' welfare. What seems necessary is comparison on those public provisions that promote welfare rather than just total expenditures or revenues per se.