Template-type: ReDIF-Paper 1.0
Author-Name: Revelli Federico
Author-Email: federico.revelli@unito.it
Author-Workplace-Name: University of Turin
Author-Workplace-Homepage: http://www.est.unito.it/
Title: Reaction or interaction? Spatial process identification in multi-tiered government structures
Abstract: This paper models horizontal and vertical fiscal externalities in a multi-tiered structure of government,
and implements maximum likelihood (ML) and instrumental variables (IV) estimation techniques to identify the source 
of spatial dependence in English local government expenditures. The results show that upper tier (County) autority 
expenditure has two opposite effects on lower tier (District) authority spending decision. By raising the local 
property tax Burden, Countries reduce resources available to Districts and lower the demand for Discrict services 
by estimated elasticity of -0.45. On the other hand, Country services are estimated to be complements of District 
services, with an elasticity of 0.25. Moreover, when vertical fiscal externalities are explicity taken into 
account, the estimated magnitude of horizontal fiscal interactions is substantially reduced. The observed positive 
spatial auto-correlation among Districts can consequently be attributed to a large extent to common reaction to 
Country fiscal policies, rather than to actual strategic interaction. 
Length: 35 pages
Creation-Date: 2002-05
File-URL: http://www.est.unito.it/do/home.pl/Download?doc=/allegati/wp2002dip/2_wp_revelli.pdf
File-Format: Application/PDF
Handle: RePEc:uto:dipeco:200202