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Infrastructure spillovers and strategic interaction: does the size matter?

Author

Listed:
  • Massimiliano Ferraresi

    (University of Ferrara)

  • Umberto Galmarini

    (Università dell’Insubria
    Institut d’Economia de Barcelona (IEB))

  • Leonzio Rizzo

    (University of Ferrara
    Institut d’Economia de Barcelona (IEB))

Abstract

We set up a model in which the residents of two neighboring municipalities use the services provided by public infrastructures located in both jurisdictions. The outcome is that municipalities strategically interact when investing in infrastructures, with the small municipality reacting more to the expenditure of its neighbor than the big one. This theoretical prediction is tested by estimating the determinants of the stock of public infrastructures of the municipalities belonging to the Autonomous Province of Trento in Italy. By introducing the classical spatial lag-error component, we find that municipalities positively react to an increase in infrastructures by their neighbors, but the effect vanishes above a given population threshold. Such a result is confirmed when we exploit the exogenous variation in the neighbors’ stock of infrastructures induced by a strong flood that occurred in the Province of Trento in 2000.

Suggested Citation

  • Massimiliano Ferraresi & Umberto Galmarini & Leonzio Rizzo, 2018. "Infrastructure spillovers and strategic interaction: does the size matter?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(1), pages 240-272, February.
    • Handle: RePEc:kap:itaxpf:v:25:y:2018:i:1:d:10.1007_s10797-017-9449-0
    DOI: 10.1007/s10797-017-9449-0
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    More about this item

    Keywords

    Local public goods spillovers; Spatial interactions; Size of local jurisdictions; Natural disaster; Internal instruments; External instruments;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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