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Revisiting yardstick competition and spillover effects in in the new era of spatial econometrics: evidence from Italian cities

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  • Massimiliano Ferraresi

    (European Commission, Directorate I)

Abstract

This paper exploits political features of Italian local governments to identify the presence of spatial interactions in spending decisions over the period 2001-2011. In particular, I take advantage of the political cycle to isolate the effect of spending decisions of one municipality on neighbors’ municipalities. The results of this analysis point to the presence of strategic interaction between neighboring municipalities, and indicate that such a fiscal behavior is more pronounced during electoral years, that is municipalities are engaged in yardstick competition. Moreover, to isolate any other source of spatial interactions from yardstick competition, I rely on a sample of municipalities experiencing a council dismissal, for which the political process is expected to be less marked - as they are led by a commissioner, who does not have any political concern. In this case, I build a measure of intensity of commissioner to induce variation in the spending decisions, finding, however, no evidence of spatial dependencies. Taken together these results suggest that the observed spatial dependence in spending decisions is unlikely to be driven by spillover e?ects, rather, it seems to be consent with the yardstick competition hypothesis.

Suggested Citation

  • Massimiliano Ferraresi, 2018. "Revisiting yardstick competition and spillover effects in in the new era of spatial econometrics: evidence from Italian cities," Working papers 69, Società Italiana di Economia Pubblica.
    • Handle: RePEc:ipu:wpaper:69
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    References listed on IDEAS

    as
    1. Massimiliano Ferraresi & Umberto Galmarini & Leonzio Rizzo & Alberto Zanardi, 2019. "Switch toward tax centralization in Italy: a wake-up for the local political budget cycle," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(4), pages 872-898, August.
    2. Akhmed Akhmedov & Ekaterina Zhuravskaya, 2004. "Opportunistic Political Cycles: Test in a Young Democracy Setting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(4), pages 1301-1338.
    3. Drazen, Allan & Eslava, Marcela, 2010. "Electoral manipulation via voter-friendly spending: Theory and evidence," Journal of Development Economics, Elsevier, vol. 92(1), pages 39-52, May.
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    5. David R. Agrawal, 2015. "The Tax Gradient: Spatial Aspects of Fiscal Competition," American Economic Journal: Economic Policy, American Economic Association, vol. 7(2), pages 1-29, May.
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    7. Alberto Alesina & Matteo Paradisi, 2017. "Political budget cycles: Evidence from Italian cities," Economics and Politics, Wiley Blackwell, vol. 29(2), pages 157-177, July.
    8. Case, Anne C. & Rosen, Harvey S. & Hines, James Jr., 1993. "Budget spillovers and fiscal policy interdependence : Evidence from the states," Journal of Public Economics, Elsevier, vol. 52(3), pages 285-307, October.
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    11. Maarten Allers & J. Elhorst, 2005. "Tax Mimicking and Yardstick Competition Among Local Governments in the Netherlands," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 493-513, August.
    12. Massimiliano Ferraresi & Giuseppe Migali & Leonzio Rizzo, 2018. "Spillover effects in local public spending," Regional Studies, Taylor & Francis Journals, vol. 52(11), pages 1570-1584, November.
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    More about this item

    Keywords

    spatial interactions; yardstick competition; spillover; political budget cycle; commissioner; external instruments;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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