Municipal Spending in Spain: Spatial Approach

Abstract

This paper provides, for the first time, an insight into the influence of urban, political, demographic, and economic factors on several categories of municipal spending, after controlling for the spatial effects. The models of spatial two-step least squares (S2SLS), spatial lag, and spatial error are applied to a sample of 3,204 Spanish municipalities for the year 2005. The results show that the spending of a municipality is influenced by its neighboring municipalities’ spending. Concerning geographical factors, population density has a negative impact on municipal expenditures per capita. The negative impact of population density on per capita total expenditures has policy relevance because it indicates that planning decisions aiming at increase population density will reduce per capita government expenditures, both in small and larger cities. Political ideology does not influence spending. Nevertheless, strong political governments do spend more. Therefore, it is not that the incumbents belong to left or right, but their strong majority which allows them to carry out their policies by spending more. The policy issue at stake here is whether municipal political majorities should be tempered, so that opposition surveillance keeps spending under control.