Universidade do Minho. Núcleo de Investigação em Políticas Económicas (NIPE)
Abstract
This paper aims at testing the degree of interaction between Portuguese
municipalities’ expenditure levels by estimating a dynamic panel model, based on
jurisdictional reaction functions. The analysis is performed for all 278 Portuguese mainland
municipalities from 1986 to 2006, using alternative ways to measure neighbourhood. Results indicate that local governments’ spending decisions are significantly influenced by the actions of neighbouring municipalities. For total expenditures, there is evidence that a 10% increase in nearby municipalities’ expenditures boosts expenditures in a given municipality by around 3.8%.Fundação para a Ciência e a Tecnologia (FCT
