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Abstract(s)
Data and economic theory suggest that economic development depends directly on individuals’ quality of life that is related with public goods and facilities provided in a certain region or municipality (jurisdiction) which have a spatial dimension. The econometric study of how space (a heterogeneous variable) impacts on regional development have been receiving adequate relevance only in the last few years due to the difficulty in dealing with the spatial correlation problem. In this framework, only recently interactions among local governments are being addressed, being the study of their implications for economic development at a very early stage. The goal of this chapter is to contribute to the discussion on how a process of spatial strategic interaction with their neighbouring jurisdictions influences local governments’ decisions regarding public expenditures, and how such interactions can have an impact on regional/local development.
Three theoretical explanations for spatial interaction in local government expenditure are present in the literature: spillover effects, Tiebout competition and mimicking behaviour. A case study of the local governments (municipalities) in the Algarve region has found support for spillover effects as the dominant driver of spatial interaction. This kind of spillover between neighbouring municipalities (jurisdictions) implies a higher level of public expenditures, compromising efficiency principles as well as regional development potential.
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Keywords
Local public expenditures Regional development Horizontal spatial interaction Spatial econometrics
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Princípia Editora