ESSAYS IN PUBLIC ECONOMICS AND POLICY

Spatial interaction in local expenditures among Italian municipalities: evidence from Italy 2001-2011 - I estimate a spatial autoregressive dynamic panel data model, using information on 5,564 Italian municipalities over the period 2001-2011, exploiting their border contiguity as a measure of spatial neighborhood. I find a positive and statistically significant effect of neighboring expenditures on total, capital and current expenditures of a given municipality. These results are robust to the use of alternative weighting matrices for the definition of spatial neighbors and also when I employ a quasi-natural experimental approach, which exploits the exogenous variation in the neighbors’ spending induced by the devastating earthquake that in 2009 hit municipalities belonging to the Abruzzo region. Moreover, I do not find any evidence of yardstick competition when I take into account political effects, while I do find a negative relationship between spatial interaction and the size of the municipality. Thus, I conclude that spillover effects drive the strategic interactions in spending decisions among Italian municipalities.