Borders as Boundaries to Fiscal Policy Interactions? An Empirical Analysis of Politicians’ Opinions on Rivals in the Competition for Firms

24 Pages Posted: 30 Mar 2017

See all articles by Benny Geys

Benny Geys

BI Norwegian Business School; Vrije Universiteit Brussel (VUB) - Applied Economics Department

Steffen Osterloh

German Council of Economic Experts

Date Written: October 2013

Abstract

Studies of spatial policy interdependence in (local) public policies usually concentrate on the relations between jurisdictions within a single analyzed region, and disregard possible extraregional effects. However, the theoretical spatial statistics literature shows that biased estimates might emerge if spatial interactions extend beyond the boundaries of the available data (i.e., the boundary value problem). This paper empirically assesses the practical relevance of this concern by studying German local politicians’ assessments of their jurisdictions’ main competitors in the struggle to attract firms. We find that location near a border significantly undermines politicians’ perception that the fiercest competitive pressure derives from jurisdictions within their own state. This effect sets in about 20 km (10.2 km) from a national (international) border. These results indicate that nearest municipalities perceive each other as competitors regardless of the state or country where they are located, which has important implications for estimating spatial dependence models.

Suggested Citation

Geys, Benny and Osterloh, Steffen, Borders as Boundaries to Fiscal Policy Interactions? An Empirical Analysis of Politicians’ Opinions on Rivals in the Competition for Firms (October 2013). Journal of Regional Science, Vol. 53, Issue 4, pp. 583-606, 2013, Available at SSRN: https://ssrn.com/abstract=2943087 or http://dx.doi.org/10.1111/jors.12029

Benny Geys (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Vrije Universiteit Brussel (VUB) - Applied Economics Department ( email )

Pleinlaan 2
1040 Etterbeek
Brussel, CA 1040
Belgium

Steffen Osterloh

German Council of Economic Experts ( email )

Federal Statistical Office
Gustav-Stresemann-Ring 11
Wiesbaden, Hessen 65180
Germany

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