Fiscal Federalism, European Stability Pact, and Municipal Investment Finance: A Microdata Analysis of Spanish Municipalities

Politics and Public Infrastructure Investments in Local Governments: Empirical Evidence from Flemish Municipalities (1996–2009)

“…3 However, some authors analysed local investments in the European area. We may refer to Fiva & Natvik (2009), Foucault et al (2008), Kemmerling & Stephan (2002), Rattsø (1999), Vallés & Zárate (2007) or Veiga & Veiga (2007). Yet none of them focuses on the large variety of determinants that may investigate the political economy of local investments.…”

“…Rattsø (1999) explicitely ignores politics when analysing the aggregate level of local investments in Norway. Vallés & Zárate (2007) examine the possible impact of budgetary stability legislation on the capital expenditure of Spanish municipalities, but their analysis is purely financial and lacks any political determinant. Foucault et al (2008) and Veiga & Veiga (2007) both test some political paradigms on local public expenditures in general for French and Portuguese municipalities respectively.…”

“…POP and COMP are introduced as infrastructure investment may be a response to increased demand from population growth and to private sector pressure (Bruce et al, 2007;Faguet, 2002 andKemmerling &Stephan, 2002). The introduction of the tax base yield comes from the idea that the demand for public goods and services increases with income (Bruce et al, 2007;Costa-i-Font et al, 2003;Hulten &Peterson, 1984 andVallés &Zárate, 2007). For POP, COMP and TBASE positive signs are expected.…”

“…This grant revenue compensates for the share of system costs imposed by non-residents. Nevertheless we should be aware that grants may be a powerful incentive to invest in infrastructure and thus may be stimulative for local public infrastructure investment (Hulten &Peterson, 1984 andVallés &Zárate, 2007). This is the case if the coefficient exceeds the value 1.…”

“…The use of debt is theoretically justified on the grounds of intergenerational equity. Whether or not a municipality finances its public infrastructure through borrowing may depend firstly on the municipality's ability to issue more debt (Vallés & Zárate, 2007). Since this is related to the local government's indebtedness, we introduce DEBT.…”