Vertical Externalities Within Multi-Level Welfare Programs: Does Central Government Welfare Spending Crowd Out Regional Spending?

Luis Ayala, Ana Herrero-Alcalde, Jorge Martinez-Vazquez () and Carolina Navarro-Ruiz
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Ana Herrero-Alcalde: Facultad de Derecho, UNED
Carolina Navarro-Ruiz: Facultad de Derecho, UNED

International Center for Public Policy Working Paper Series, at AYSPS, GSU from International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University

Abstract: This paper contributes to the existing literature on vertical externalities in fiscally decentralized settings by analyzing the impact of a quite unique experience in the vertical composition of welfare spending in a country. We study the reactions of subnational governmentsÕ spending in the transitioning from a context of complete decentralization of welfare benefits to another where a parallel central government program targeting the same population is implemented. Using data from Spanish regional and central welfare programs and the canonical model specification of multilevel government externalities, we find that regional governments reacted negatively to the introduction of the new central welfare benefits by significantly reducing their own welfare expenditures. However, this crowding-out effect is weaker in relatively richer regions and those headed by left-wing regional administrations.

Pages: 47 pages
Date: 2024-03
New Economics Papers: this item is included in nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:ays:ispwps:paper2402

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