Sluggishness, Endogeneity and the Demand for Local Public Services

Matz Dahlberg () and Johanna Jacob
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Johanna Jacob: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

No 2000:17, Working Paper Series from Uppsala University, Department of Economics

Abstract: 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.

Keywords: Local public goods; Median voter; Panel data; Endogeneity; Sluggishness (search for similar items in EconPapers)
JEL-codes: C33 D72 H72 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2000-11-14
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Sluggishness, Endogeneity and the Demand for Local Public Services (2000)
Working Paper: Sluggishness, Endogeneity and the Demand for Local Public Services (2000)
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