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Revisiting yardstick competition and spillover effects in in the new era of spatial econometrics: evidence from Italian cities

Massimiliano Ferraresi ()
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Massimiliano Ferraresi: European Commission, Directorate I

Working papers from Società Italiana di Economia Pubblica

Abstract: This paper exploits political features of Italian local governments to identify the presence of spatial interactions in spending decisions over the period 2001-2011. In particular, I take advantage of the political cycle to isolate the effect of spending decisions of one municipality on neighbors’ municipalities. The results of this analysis point to the presence of strategic interaction between neighboring municipalities, and indicate that such a fiscal behavior is more pronounced during electoral years, that is municipalities are engaged in yardstick competition. Moreover, to isolate any other source of spatial interactions from yardstick competition, I rely on a sample of municipalities experiencing a council dismissal, for which the political process is expected to be less marked - as they are led by a commissioner, who does not have any political concern. In this case, I build a measure of intensity of commissioner to induce variation in the spending decisions, finding, however, no evidence of spatial dependencies. Taken together these results suggest that the observed spatial dependence in spending decisions is unlikely to be driven by spillover e?ects, rather, it seems to be consent with the yardstick competition hypothesis.

Keywords: spatial interactions; yardstick competition; spillover; political budget cycle; commissioner; external instruments (search for similar items in EconPapers)
JEL-codes: H20 H71 H77 (search for similar items in EconPapers)
Date: 2018-03
New Economics Papers: this item is included in nep-cdm, nep-eur, nep-pub and nep-ure
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