The impact of Demand Factors on the Supply of Local Public Services in Estonian Municipalities

Abstract

The goal of this paper is to model and assess the influence of demand-side factors on the supply of mixed local public services in Estonian municipalities. Population size and structure, as well as income levels and employment structures of the residents of the municipalities, are considered the demand-side factors of mixed local public services in this study. The supply of these services are described through different types of budget expenditure per resident or service user, but also through the shares of different expenditure types in total expenditure in Estonian local governments budgets. The significance, direction and intensity of the influence of potential factors on supply of local mixed public services is identified using correlation analysis, principal component analysis and multiple regression analysis. The results of the empirical analysis show many statistically significant relationships between demand-side factors and supply indicators, but only a small share of the differences between municipalities in terms of the level and structure of budget expenditures on mixed local public services is described through multiple regression models based on the principal components of demand-side factor sets. Consequently, the effectiveness of the supply of mixed local public services is not high and needs improvement in Estonian municipalities.