Cooperation Among Local Governments to Deliver Public Services : A 'Structural' Bivariate Response Model with Fixed Effects and Endogenous Covariate
GATE Groupe d’Analyse et de Théorie Économique Lyon-‐St Étienne Working Paper No. WP 1304
35 Pages Posted: 14 Feb 2013
Date Written: February 1, 2013
Cooperation among local governments has been encouraged to enable the aggregation of resources and improved public sector efficiency. However, if cooperation through the joint delivery of local public services is likely to be welfare enhancing for the agglomeration, but will lead to losses for one of the parties, it is unlikely that the losing municipality will cooperate. Using a unique panel dataset of 30,000 French municipalities for 1995-2003, we estimate the relationship between cooperation decision and the fiscal revenues raised to provide local public goods. We employ a new econometric strategy based on Lee (1978), developing a non linear method controlling for fixed effect, endogenous covariates and cluster standard error. We find evidence that a positive difference between the expected fiscal revenues of a cooperating locality and the actual revenues realized by an isolated locality significantly increases the probability of joining an inter-municipal community.
Keywords: inter-municipal cooperation, fiscal revenues, bivariate response variable, panel data, endogeneity
JEL Classification: C3, H2, H4, H7
Suggested Citation: Suggested Citation