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Expenditure interactions between municipalities and the role of agglomeration forces: a spatial analysis for North Rhine-Westphalia

  • Sebastian LangerEmail author
Original Paper
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Abstract

This paper analyzes municipal expenditures in the light of horizontal fiscal interactions. I investigate total expenditures and a set of non-earmarked expenditure subcategories in the largest German federal state, North Rhine-Westphalia. The empirical analysis is based on a Spatial Durbin Model in a panel for the years 2009–2015. Using a two-regime spatial matrix, I also examine the impact of agglomeration on the intensity of public expenditure interactions, thus testing the hypothesis that an agglomerated region can decrease the amount of public goods without losing mobile factors to the periphery. The findings indicate that significant municipal expenditure interaction effects do exist. The reaction functions also vary for different expenditure subcategories. Unlike spillover effects and fiscal competition, yardstick competition is an insignificant source of potential interactions. Expenditure interaction is fiercer if there is less agglomeration in a municipality. Urbanized and populous municipalities appear to benefit from agglomeration economies, a fact that enables them to spend less. Robustness checks confirm the findings.

JEL Classification

C21 C23 H70 H72 H77 R1 

Notes

Acknowledgements

I am grateful to Artem Korzhenevych, Georg Hirte, Çilem Selin Hazιr and Alejandro de Castro Mazarro for their valuable comments, support and constructive suggestions. Moreover, I thank anonymous referees for their constructive suggestions and comments.

Compliance with ethical standards

Conflict of interest

The author declares that he has no conflict of interest.

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Leibniz Institute of Ecological Urban and Regional Development (IOER)DresdenGermany
  2. 2.Faculty of Business and EconomicsTechnische Universität DresdenDresdenGermany

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