Strategic Interactions among Swedish Local Governments

University dissertation from Uppsala : Acta Universitatis Upsaliensis

Abstract: Essay 1 (with Matz Dahlberg) investigates if local governments react on the welfare benefit levels in neighbouring jurisdictions when setting their own benefit levels. The IV estimates indicate that there exists a "race-to-the-bottom" and that the effect is economically as well as statistically significant.Essay 2 tests for strategic competition in public spending on childcare and primary education, and care for the elderly, in Swedish municipalities. The study is not limited to interactions in the same type of expenditure, but also allows for effects across expenditures. The results give no robust support for the hypothesis that municipalities react on the spending policy of neighbouring municipalities in the decision on own spending on care of the elderly, childcare and education.Essay 3 (with Hanna Ågren) uses data on Swedish local governments to test for strategic interaction in local tax setting. We make use of a number of indirect predictions from the theories of tax competition and yardstick competition in order to test for the presence of strategic interaction in these forms. The analysis provides strong evidence for spatial correlation in tax rates among Swedish local governments. Moreover, we find weak evidence of tax competition effects in the setting of tax rates.Essay 4 tests for a migration response to the implementation of stricter rules for welfare benefit receipt in Stockholm town districts. The hypothesis is that welfare benefit prone individuals will choose to live in a town district that has no program if they dislike the loss of leisure due to program participation more than they value the contents of the program, and vice versa. The results give weak indications of a negative effect of the program on the outmigration of welfare prone individuals.

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