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Municipal Infrastructure Spending Capacity in South Africa: A Panel Smooth Transition Regression Approach

Vandudzai Mbanda and Lumengo Bonga-Bonga
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Vandudzai Mbanda: Department of Economics and Econometrics, University of Johannesburg, South Africa

Economia Internazionale / International Economics, 2023, vol. 76, issue 1, 41-64

Abstract: This paper assesses the factors that contribute to underspending of capital budget at the local government level by making use of a nonlinear model based on the panel smooth transition regression (PSTR) model. South Africa is used as a case study. Capital transfer is identified as an important threshold variable in that the degree to which municipalities spend their capital budget depends on a threshold determined by capital transfer received from the national government. The results of the empirical analysis show that large amounts of capital transfers to local government contribute to underspending by municipalities in South Africa. Moreover, the results indicate that capital budget spending could be improved if municipalities are incentivised to raise their own revenues. La capacità di spesa delle infrastrutture municipali in Sud Africa: un approccio PSTR (panel smooth transition regression) Questo articolo esamina i fattori che contribuiscono a risparmiare il budget a livello dei governi locali attraverso un modello non-lineare basato sull’approccio PSTR (panel smooth transition regression). Il paese oggetto di questo studio è il Sud Africa. Il trasferimento di capitale è identificato come l’importante variabile in quanto il livello al quale le municipalità spendono il loro budget dipende da una determinata soglia di trasferimento di capitale ricevuta dal governo centrale. Il risultato dell’analisi empirica mostra che elevati trasferimenti di capitale ai governi locali contribuiscono alla riduzione delle spese delle municipalità in Sud Africa. Inoltre, vi sono evidenze che il budget di spesa potrebbe essere migliorato se le municipalità fossero incentivate ad accrescere le loro entrate.

Keywords: Capital Budget Spending; Transfers; Municipalities; Panel Smooth Transition Regression (search for similar items in EconPapers)
JEL-codes: C30 C51 H72 (search for similar items in EconPapers)
Date: 2023
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