Spatial patterns of flypaper effects for local expenditure by policy objective in Japan: A Bayesian approach

Kazuhiko Kakamu, Hideo Yunoue and Takashi Kuramoto

Economic Modelling, 2014, vol. 37, issue C, 500-506

Abstract: The empirical work on local public finance has found that the marginal effect of lump-sum grants on expenditure is larger than that of income, thereby providing evidence of the “flypaper effect”. However, most existing studies only employ single equation models to test the flypaper effect. In this paper, we specify a seemingly unrelated regression (SUR) model to examine the flypaper effect in Japan, primarily because other categories of expenditure influence the expenditure on particular policy objectives. We also include spatial interaction in our estimation model and employ a Bayesian approach in estimating our model. Our results show that SUR with a spatial error model is better for this purpose than several other specifications. Using this approach, we observe evidence of the flypaper effect in land development, police, education, and debt expenditure, and spatial interaction in sanitation, police, education, and disaster recovery expenditure.

Keywords: Flypaper effect; Local expenditure by policy objective; Markov chain Monte Carlo (MCMC); Seemingly unrelated regression (SUR); Spatial models (search for similar items in EconPapers)
JEL-codes: C11 C21 H72 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:37:y:2014:i:c:p:500-506

DOI: 10.1016/j.econmod.2013.11.028

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