The Effects of Regional Sizing on Growth

Santiago Lago-Peñas and Bruno Ventelou

Public Choice, 2006, vol. 127, issue 3, 407-427

Abstract: In this paper, a micro-founded model dealing with the effects of regional sizing on economic growth is developed. Departing from bigger sizes, reduction involves more efficient public choices because of proximity to individual preferences and needs, but also creates the risk of underestimation of the real profitability of public expenditure by local governments due to cross border spillovers and “predator” behaviors. Hence the optimal size depends on the relative strength of both effects. Moreover, we show that different institutional arrangements between fiscal tiers involve different results for each possible size. Using data from the Spanish regions during the period 1984–1996, the relationship between productive spending and jurisdiction size is then analyzed. Copyright Springer Science+Business Media, Inc. 2006

Date: 2006
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DOI: 10.1007/s11127-005-9001-0

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