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When does inter-jurisdictional competition engender a "race to the bottom"?: a meta-regression analysis

Costa-i-Font, Joan and De-Albuquerque, Filipe and Doucouliagos, Hristos (2015) When does inter-jurisdictional competition engender a "race to the bottom"?: a meta-regression analysis. CESifo working paper (5212). CESifo Group, Munich, Germany.

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Abstract

A growing literature documents the existence of strategic political reactions to public expenditure in one jurisdiction on either neighboring or reference jurisdictions. The latter might give raise to downward expenditure spiral, or “race to the bottom”. However, in ascertaining the empirical triggers of such a process evidence is suggestive of markedly heterogeneous findings. Most of such heterogeneity can be traced back to study design and institutional differences. This paper contributes to the literature by applying meta-regression analysis to quantify the size and the direction of strategic inter-jurisdictional expenditure interactions controlling for study and institutional characteristics. We find several robust results beyond confirming that jurisdictions do engage in strategic expenditure interactions; namely that (i) interactions are weakening over time; (ii) strategic interactions are stronger among municipalities than among intermediate levels of government; and (iii) strategic interactions appear to emerge from tax competition rather than yardstick competition, with capital controls and fiscal decentralization shaping the magnitude of fiscal interactions. Hence, we conclude political decentralization structures that draw upon the political agency (yardstick competition) are not necessarily engendering a ‘race to the bottom’.

Item Type: Monograph (Working Paper)
Official URL: http://www.cesifo-group.de/ifoHome.html
Additional Information: © 2015 The Authors
Divisions: European Institute
Social Policy
Centre for Economic Performance
Subjects: H Social Sciences > H Social Sciences (General)
JEL classification: H - Public Economics > H1 - Structure and Scope of Government > H10 - General
H - Public Economics > H5 - National Government Expenditures and Related Policies > H50 - General
Sets: Departments > European Institute
Departments > Social Policy
Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Research centres and groups > LSE Health and Social Care
Date Deposited: 13 Feb 2015 16:10
Last Modified: 16 Jul 2015 08:10
URI: http://eprints.lse.ac.uk/id/eprint/60948

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