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Spatial spillovers in public expenditure on a municipal level in Spain

Abstract

A key function of local governments is to provide a wide array of public services. The supply of these services has been found to create spatial spillovers among neighbouring municipalities. Although it is generally agreed that spillovers are present in models that explain government expenditures, their type—whether endogenous, exogenous or residual—and sign—whether positive or negative—remain ambiguous. In most cases, a subjective process is used to select the type of spatial regression model used in analysis, with mixed results. Per capita expenditures of ten subprogrammes (Security, Housing, Welfare, Environment, Social services, Employment promotion, Health, Education, Culture and Sport) are analysed for all Spanish municipalities with more than 5000 inhabitants in the 2010–2012 period. A Spatial Seemingly Unrelated Regression methodology in a panel framework is used to incorporate correlation between different subprogrammes and spatial dependence. Our results show that the three types of spatial effects are present. Furthermore, substantive dependence is positive in most cases, while negative residual dependence is observed in some.

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Fig. 1

Notes

  1. 1.

    Similar results with \(\alpha =0\) and \(d=30\) km and \(k=9\) nearest neighbourhoods or \(\alpha =0\) \(d=25\) km and \(k=8\) nearest neighbourhoods. Not reported to save space but available under request.

  2. 2.

    For spatial econometric models the use of the standard \({R}^{2}\) is not appropriate—the \({R}^{2}\) is uninformative and should be interpreted with caution (Anselin 1988). Therefore, the maximized log-likelihood value is used for models estimated by maximum likelihood as goodness of fit criteria.

  3. 3.

    The marginal test LM-SUR(\({\rho } |\lambda \) ) testing for the presence of spatial error structure in a model with spatial lag (SUR-SDM) and LM-SUR(\(\lambda |{\rho }\) ) testing for the presence of spatial lag in a model with spatial error structure (SUR-SDE).

  4. 4.

    Thanks to the review for this suggestion

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Acknowledgments

We gratefully acknowledge the contribution of three anonymous reviewers in helping us improve the quality of this paper. Prof. Fernando A. López , grateful for the financial support offered by the projects from Programa de Ayudas a Grupos de Excelencia de la Región de Murcia, Fundación Seneca (#19884-GERM-15) and Ministry of Economy and Competiveness (ECO2015-651758-P).

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Correspondence to Fernando A. López.

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López, F.A., Martínez-Ortiz, P.J. & Cegarra-Navarro, JG. Spatial spillovers in public expenditure on a municipal level in Spain. Ann Reg Sci 58, 39–65 (2017). https://doi.org/10.1007/s00168-016-0780-7

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Mathematics Subject Classification

  • C21
  • C50
  • H72