Working Paper

Political Economy

Albert Solé

2001/05: Budget spillovers in a metropolitan area: typology and empirical evidence

We present a model for measuring spillovers resulting from local expenditure policies. We identify and test for three different types of budget spillovers: (i) benefit spillovers from the production of local public goods, (ii) externalities in crowding, caused by non-resident users of public facilities, and (iii) externalities from expenditure competition effects. In order to account for these types of spillovers, we specify a demand of public goods with interactions among local governments. The model is tested for different expenditure categories with a cross-section of data from municipalities of the metropolitan area of Barcelona. We find positive benefit spillovers in spending in Cultural and Sports facilities, and in Parks and Streets maintenance. Externalities in crowding appear in spending on Police, Cultural and Sports facilities, Parks and Streets maintenance, and Street cleaning, Water delivery and Sanitation. Spending on Social services seems to be affected by competition externalities, while there is no evidence of spillovers in the expenditure on General Administration.