Three Essays on Local Public Finance

Abstract

Three Essays on Local Public Finanace Lenka Šťastná Abstract The dissertation studies spending decisions of local governments. It consists of three parts; theoretical model is developed in the first part and empirical analyses of Czech municipalities of extended scope are presented in the other two parts. The theoretical model analyzes whether it is beneficial to decentralize policy decision-making when local public goods in two symmetric regions are complements. Strategic delegation when a voter intentionally votes for a politician whose preferences do not coincide with those of the voter and in-kind transfers, used to support local public goods production in the other region, are allowed. According to Oates' decentralization theorem, centralization pareto-dominates decentralization for symmetric regions regardless level of spillovers. However, for complementary public goods and when strategic delegation and in-kind transfers are considered, the tradeoff may be exactly opposite and decentralization may pareto-dominate centralization. The second part aims to test fiscal interaction among local governments in the Czech Republic which can be driven by spillover effects, competition, mimicking, or cooperation. Spatial dependence of local public spending (i.e. whether spending decisions in neighboring...