Sluggishness, Endogeneity and the Demand for Local Public Services

Arbeitspapier

Earlier studies estimating the demand for local public services by means of the median voter model have typically assumed exogenous regressors and static set-ups. Furthermore, the commonly used log-linear specification of the demand function has in most cases not been supported by a well-defined maximisation problem. In this paper, we investigate whether it is important to control for endogeneity and dynamics in empirical work. Using a panel of 266 Swedish municipalities over the period 1981-1987, our test results show that the regressors are endogenous and that the adjustment process is potentially sluggish. We get significantly lower price- and income elasticities when we control for endogeneity and dynamics. In addition, when we control for endogeneity and dynamics, we can no longer reject the hypothesis that observed behaviour can be rationalised by a Cobb-Douglas utility function. This implies that the log-linear specification of the demand function is valid as long as appropriate econometric techniques are used.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2000:17

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Panel Data Models; Spatio-temporal Models ; Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior ; State and Local Budget and Expenditures
• Subject: Local public goods ; Median voter ; Panel data ; Endogeneity ; Sluggishness ; Lokale öffentliche Güter ; Nachfrage ; Medianwähler-Modell ; Panel ; Schweden

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dahlberg, Matz ; Jacob, Johanna
• Event: Veröffentlichung
• (who): Uppsala University, Department of Economics
• (where): Uppsala
• (when): 2000

Further information

• Handle: http://hdl.handle.net/10419/82940
• URN: urn:nbn:se:uu:diva-2502
• Last update: 10.03.2025, 11:42 AM CET