Essays on local public finance and intergovernmental grants

Sammanfattning: This thesis consists of five self-contained essays on local public finance and intergovernmental grants.Essay I: Two different bootstrap approaches for GMM estimations have recently been suggested for use in dynamic panel data models: Brown & Newey (1995) and Hall & Horowitz (1996). In this essay we compare the small sample properties of these estimators, and suggest how sequential testing can be conducted within the GMM bootstrapping framework. Our findings are that i) the Brown and Newey method has superior size properties, and that ii) the Hall and Horowitz method works better than the usual asymptotic tests in a sequence of tests.Essay II: Even though recent Monte Carlo evidence has shown that the use of bootstrap critical values instead of asymptotic ones improves tests' sizes substantially, empirical applications using GMM bootstrap techniques are largely missing. In this essay, the dynamic relationships between local government revenues and expenditures are re-investigated using GMM bootstrapping techniques on a panel of 265 Swedish municipalities over the period 1979 - 1987. A lag of one year is found in the expenditures equation, while no dynamics is found in the own-source revenues and grants equations. These results contrast sharply with those obtained when asymptotic critical values are used.Essay III: Swedish municipalities account for approximately 20 percent of total Swedish employment. In this essay we investigate the determinants of municipal labor demand in Sweden 1988 -1995. Utilizing a major grant reform in 1993 we are able to compare the effects that different type of grants have on municipal employment. We find a larger municipal employment elasticity with respect to grants before the reform when grants were targeted rather than general. We further find a short run wage elasticity of approximately -0.5 and a long run ditto of approximately -0.9, and a quite sluggish adjustment process.Essay IV: In this essay, redistributive transfers between regions are examined in a political economy model where both parties and voters are lead by selfish as well as ideological motives, the latter taking the form of egalitarian objectives. It is found that regional transfers are completely tactical; it is the political power of a region that decides if it will be a receiver or a contributor of transfers. Ideological goals are reached by redistributive transfers between different income types.Essay V: Are grants to Swedish municipalities tactical? In this essay, I derive testable implications from a theoretical voting model and test these on a panel of 255 Swedish municipalities, 1981 - 1995. In order to decide which regions that are politically powerful, both election results, and survey data from the Swedish election studies are used. The results, although somewhat ambiguous, support the hypothesis that intergovernmental grants are used in order to win votes.