An Examination of the Dynamic Behavior of Local Governments Using GMM Bootstrapping Methods

Matz Dahlberg () and Eva Johansson ()
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Eva Johansson: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Authors registered in the RePEc Author Service: Eva Mörk ()

No 1997:11, Working Paper Series from Uppsala University, Department of Economics

Abstract: Recent Monte Carlo evidence has shown that tests based on asymptotic critical values tend to reject a true null too often, while tests based on bootstrap critical values have empirical sizes that are very close to the nominal ones. This casts doubt on the growing number of studies indicating considerable dynamics in local government behavior since they all rely on asymptotic critical values. Using GMM bootstrapping techniques, this paper re-investigates the dynamic interrelationship between local government revenues and expenditures. Further, the results are compared with those obtained using asymptotical critical values. The panel covers 265 Swedish municipalities over the period 1979-1987. A lag of one year is found in the expenditures equation, while no dynamics is found in the own-source revenues and grants equations. These results, while contrasting sharply with those obtained when asymptotic critical values are used, are well in line with the theoretical explanations given in the literature for dynamic behavior in the local public sector.

Keywords: GMM bootstrapping; local governments; revenues-expenditures nexus (search for similar items in EconPapers)
JEL-codes: C15 C33 H72 (search for similar items in EconPapers)
Pages: 20 pages
Date: 1997-04-07
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Citations: View citations in EconPapers (18)

Published in Journal of Applied Econometrics, 2000, pages 401-416.

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