EconPapers    
Economics at your fingertips  
 

The role of externalities in fiscal efficiency

Thiago Silva (), Solange Guerra and Marcus Vinicius B. Santos
Additional contact information
Marcus Vinicius B. Santos: Universidade Católica de Brasília

Empirical Economics, 2022, vol. 62, issue 6, No 8, 2827-2864

Abstract: Abstract Fiscal efficiency is determined not only by the municipality’s local characteristics but also by externalities from the neighborhood. In this paper, we study municipalities’ fiscal efficiency and assess the importance of such externalities in shaping local fiscal efficiency. The quantification of externalities is challenging because municipalities interact in complex ways. We build a municipality-specific indicator of externalities that considers the effect of the geographic and social neighborhoods. Externalities tend to increase when municipalities are close and have more significant differences in social development. To analyze the role of externalities in public spending efficiency, we propose a novel way to compare efficiency models by ensuring similarity in their structural properties (inputs, outputs, and orientation). In this situation, when one does not consider the network effect that a specific municipality receives, one could be misevaluating the municipality’s actual efficiency level. We apply our model to Brazilian municipalities and find that socio-economic externalities play an essential role in local public spending efficiency. Many municipalities are deemed efficient when they are not if we do not explicitly consider the effect of externalities on the municipality’s local performance. Our findings highlight the importance of socio-economic cooperation and integration among municipalities as a tool to achieve better fiscal performance.

Keywords: Externalities; Fiscal efficiency; Public finance; Networks; Municipalities (search for similar items in EconPapers)
JEL-codes: C44 C50 D62 H21 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://link.springer.com/10.1007/s00181-021-02124-1 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:empeco:v:62:y:2022:i:6:d:10.1007_s00181-021-02124-1

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

DOI: 10.1007/s00181-021-02124-1

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

 
Page updated 2022-10-05
Handle: RePEc:spr:empeco:v:62:y:2022:i:6:d:10.1007_s00181-021-02124-1