When Does Inter-Jurisdictional Competition Engender a 'Race to the Bottom?' A Meta-Regression Analysis

40 Pages Posted: 10 Mar 2015

See all articles by Joan Costa-Font

Joan Costa-Font

London School of Economics & Political Science (LSE)

Filipe De-Albuquerque

London School of Economics & Political Science (LSE)

Hristos Doucouliagos

Deakin University - School of Accounting, Economics and Finance

Date Written: June 2015

Abstract

A growing literature documents the existence of strategic political reactions to public expenditure between rival jurisdictions. These interactions can potentially create a downward expenditure spiral (‘race to the bottom’) or a rising expenditure spiral (‘race to the top’). However, in the course of identifying the existence of such interactions and ascertaining their underlying triggers, the empirical evidence has produced markedly heterogeneous findings. Most of this heterogeneity can be traced back to study design and institutional differences. This paper contributes to the literature by applying meta-regression analysis to quantify the magnitude of strategic inter-jurisdictional expenditure interactions, controlling for study and institutional characteristics. We find several robust results beyond confirming that jurisdictions do engage in strategic expenditure interactions, namely that strategic interactions: (i) are weakening over time, (ii) are stronger among municipalities than among higher levels of government, and (iii) appear to be more influenced from tax competition than yardstick competition, with capital controls and fiscal decentralization shaping the magnitude of fiscal interactions.

Keywords: inter-jurisdictional competition, yardstick competition, meta-regression, expenditure competition

JEL Classification: H10, H50

Suggested Citation

Costa-Font, Joan and De-Albuquerque, Filipe and Doucouliagos, Chris (Hristos), When Does Inter-Jurisdictional Competition Engender a 'Race to the Bottom?' A Meta-Regression Analysis (June 2015). CESifo Working Paper Series No. 5212. Available at SSRN: https://ssrn.com/abstract=2576133

Joan Costa-Font (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://https://joancostaifont.org/

Filipe De-Albuquerque

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Chris (Hristos) Doucouliagos

Deakin University - School of Accounting, Economics and Finance ( email )

Burwood, Victoria 3215
Australia

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