Fiscal Federalism and the impact of Intergovernmental Grants: the European Regional policy in Spain

1 Ti le: Fiscal Fede alism and he impac o In e go e nmen al G an s. The Eu opean Regional policy in Spain Au ho : Juan González-Aleg e A ilia ion: Uni e si a Au ònoma de Ba celona Con ac : [email protected] Phone: (+34) 935811740 Fax: (+34) 935812292 Dp o. Economía Aplicada Uni e sidad Au ónoma de Ba celona Edi ici B Campus de Bella e a 08193 Ce danyola (Ba celona) Spain 2 Abs ac : We suspec ha he e iciency o in e go e nmen al g an s is ela ed o he le el o iscal au onomy o he subsidized go e nmen . In his pape we cons uc and es ima e a panel da a model cap u ing he ole o iscal ede alism on he e ec i eness o EU S uc u al Ac ions in enhancing public expendi u e in selec ed policy a eas. We use da a om he se en een Spanish egions o he pe iod 1993-2007. Resul s unambiguously suppo he hypo hesis ha he e ec i eness o he ERDF dec eases wi h la ge iscal au onomy. The ole o he Eu opean Social Fund is s ill unde analysis. These esul s could e lec he ac ha iscal decen aliza ion in Spain has been ocused o la ge axa ion au onomy wi hou a ec ing egional income edis ibu ion. JEL classi ica ion: H72, H77, C33, C23. Keywo ds: Fiscal Fede alism; In e go e nmen al G an s; Regional Policy; Panel Da a; Acknowledgemen s I am g a e ul o commen s and help ul sugges ions a he I ish Socie y o New Economis s mee ing 2010, he XIV Encuen o de Economía Aplicada, he XXXVI Simposio de la Asociación Española de Economía and he ESF Explo a o y Wo kshop on Fiscal Policy a he Regional Le el and In e go e nmen al Rela ions. Funding The au ho acknowledges inancial suppo om he “Ins i u d´Economia de Ba celona” unde i s “Resea ch g an s on iscal ede alism” p og am. 3 1. INTRODUCTION The Cohesion Policy designed by he Eu opean Union has been con ibu ing ac i ely o he achie emen o sus ainable economic g ow h in Eu opean egions o e he las decades. The ecen poli ical and economic de elopmen s in he EU may jus i y he e ision o some o he p inciples d i ing he Cohesion Policy so as i can pe o m i s du y wi h equal success in he coming yea s. One o he main challenges o ackle, which is al eady aking place, is he ansi ion o he Cohesion Policy o he new Eu opean Union a e he mo e ecen enla gemen s o he Union, which ha e leaded o a la ge and, in pa icula , mo e he e ogeneous, ield o applica ion o he policy. The ecen economic c isis, will, in addi ion, pu mo e p essu e on he consolida ion o he public budge in all le els o he public adminis a ion. One o he aspec s ha mus be pu in o conside a ion, and he issue co e ed in his pape , is he ole ha he di e en le els o iscal decen aliza ion achie ed in e e y Membe S a e ha e on he mechanisms uling he Cohesion Policy. In pa icula , we will s udy he p og ams design unde he S uc u al Ac ions1 ha pu sue he inc ease o public in es men on key a eas o g ow h. We will, he e o e, ocus ou a en ion in hese policies whose pu pose is enhancing Public In es men , and will y o e alua e whe he he le el o iscal decen aliza ion o he membe s a es play a ole in hei e ec i eness. Bo h issues, Fiscal decen aliza ion and EU in e go e nmen al g an s, ha e been add essed sepa a ely in nume ous empi ical s udies. In mos o he cases he ocus o he s udies has been cen e ed in es ima ing he e ec o hese policies on economic g ow h. Only e y ecen ly, some esea che s ha e 1 In he nomencla u e o he Eu opean Union, he e m “S uc u al Funds” usually e e o he ou Funds con o ming he so-called Regional Policy (Eu opean Regional De elopmen Fund, o ERDF; Eu opean Social Fund, o ESF; Financial Ins umen s o Fishe ies Guidance, o FIFG; and he Eu opean Ag icul u al Guidance and Gua an ee Fund, o EAGGF which has been eplaced by he Eu opean Ag icul u al Gua an ee Fund in 2007) while he “S uc u al Ac ions” include, in addi ion, he Cohesion Fund. In his pape , we will use bo h e ms indis inc i ely. 4 pu hei a en ion on he impac on he dis ibu ion o public expendi u es. Bu , o ou knowledge, he e is no p e ious wo k ying o add ess he impo ance o he simul aneous e ec o bo h policies. Economic heo y has also adi ionally modeled he issues o iscal decen aliza ion and e ec i eness o in e go e nmen al g an s sepa a ely. Ne e heless, e y ecen de elopmen s o economic heo y in he ield o in e go e nmen al g an s ha e iden i ied he ole o iscal au onomy o g an ed go e nmen in he e iciency o he g an s. Resul s, i no o ally con adic o y, a e no coinciden among he ew s udies. Volden (2007), o example, inds ha he e ec o g an s depends on he capaci y o he ecipien go e nmen o e icien ly aise axes. Go e nmen s wi h g ea e ax-e iciency2 would expe ience highe c owding-ou induced by he g an , meaning ha he g an becomes less e ec i e in enhancing public expendi u e in a pa icula policy a ea3. Kappelle (2007) inds, ins ead, ha he g an ed go e nmen s would unde -in es when ax-au onomy is es ic ed, pa icula ly in ich egions. In his case, he le el o ma ching-g an s is also subop imal. Economic heo y p obably needs o u he empi ical s udies iden i ying s ylized ac s o e which build assump ions and de elop iche models. Bu also he public adminis a ions and he socie y in gene al, need o be e ins umen s o judge he esul s o he se e al policies aken o e . Based on he decla ed a ge ha he S uc u al Ac ions –exclusi e o he ESF- a e in ended o p omo e Public In es men in key a eas o g ow h, his pape ies o show ha he e ec i eness o hese policies will depend on he le el o iscal decen aliza ion o he coun y o egion o applica ion. Being his he case, he policy implica ion yield by his esul would include aking in o accoun he di e en le els o iscal ede alism achie ed in he Membe S a es in he ules go e ning he S uc u al Ac ions. The one- size- i s-all s a egy, ha has gi en easonably good esul s in he pas , may be imp o ed in o de o 2 De ining ax-e iciency as he capaci y ha he subsidized go e nmen has o e icien ly aise axes. One could hink ha his a iable may be closely linked o he le el o iscal au onomy. 3 Gil-Se a e and López-Labo da (2005) link he causali y in he o he di ec ion, s a ing ha economies wi h a highe “ lypape e ec ” (expendi u e esponse o an in e go e nmen al g an ) would ha e a lowe op imal le el o ax-decen aliza ion. 5 se e a la ge and mo e he e ogeneous Eu opean Union in a new scena io in which, mos likely, augh cons ains in he public budge a e going o emain o yea s a e he c isis is o e come. Spanish egions a e, p obably, he be e example o he de elopmen on bo h policies o e he pas ew yea s. Spain ha e, simul aneously, expe ienced an impo an decen aliza ion p ocess as well as bene i ed g ea ly o he Cohesion Policies un h ough he S uc u al Ac ions. Bo h p ocesses ha e been asymme ic and independen : asymme ic because while iscal ede alism has a ec ed di e en ly in ime and deg ee he se e al Spanish egions, he alloca ion o S uc u al Ac ion shows also impo an di e ences ac oss egions; and independen , because bo h policies a e comple ely un ela ed, since he e is no economical, social o geog aphical aspec s unning he p ocesses o decen aliza ion. The e o e, he s onge e ec o he S uc u al Ac ions de o ed o poo e egions a ec , equally, o egions wi h high o low le el o iscal au onomy. The pape p oceeds as ollows: Sec ion 2 gi es an o e iew o he main ac s and igu es desc ibing iscal decen aliza ion and S uc u al Funds in Spain; Sec ion 3 p esen s he heo e ical amewo k ha will help o in e p e he esul s; Sec ion 4 p esen s he da a and a iables; Sec ion 5 desc ibes he me hodology and he esul s; and Sec ion 6 concludes. 2. FISCAL DECENTRALIZATION AND REGIONAL POLICY IN SPAIN In his sec ion, we in oduce some igu es ha show how Spanish egions a e a sui able illus a ion o he wo policies unde conside a ion ( iscal decen aliza ion and EU cohesion policy), as hey a ec hese egions wi h a ela i ely la ge deg ee o c oss-sec ional a iabili y. The ecen p ocess o decen aliza ion o public inancing in Spain s a s wi h he Spanish Cons i u ion o 1978. The Cons i u ion se he bases o he ul e io es ablishmen o he se en een egional bodies, de ined as “Au onomous Communi ies”, which a e he main bene icia ies o he decen aliza ion p ocess. The Cons i u ion s a es ha he le el o compe encies assumed by each egional go e nmen 6 and he pace a which hese compe encies a e assumed is no homogeneous among all egions. The cons i u ion o he egional go e nmen s inished in 19834. Figu e [1] abou he e Simul aneously o he p ocess o poli ical adap a ion o he new Cons i u ion, occu ed he mos impo an inc ease o public spending. To al public spending mo ed om ep esen ing less han hi y pe cen o GDP in he la e se en ies o lay a ound i y pe cen in he las yea s. Figu e [1] shows how he main bene icia y o he decen aliza ion in he las yea s has been he egional sec o . Local public expendi u e has only inc eased i s sha e o e o al expendi u e wo pe cen age poin s in hi een yea s, while he egional le el has inc eased o o e 30% o o al public expendi u e in 2008, compa ed o 1995 when i ep esen ed a ound 17 %. Figu e [2] shows ha he p ocess o decen aliza ion ha Spain has expe ienced is no a gene al pa e n o beha io o he coun ies on i s economic en i onmen . Figu e [2] abou he e The Spanish Cons i u ion disc imina es be ween wo ypes o egions: he so-called "his o ic na ionali ies" o egions wi h a high le el o compe encies5 and he en emaining egions6 (and he wo au onomous ci ies) ha in p inciple assume a lowe le el o compe encies. In p ac ice, he egions wi h high le els o compe encies expe ienced a highe le el o iscal au onomy in he beginning, bu he gap be ween bo h ypes o egions ha e been educed as long as he decen aliza ion p ocess has been aking place. We can obse e his phenomenon i we build a a io o iscal decen aliza ion as he coe icien be ween pe capi a expendi u e a he egional le el o he pe capi a expendi u e a he cen al le el, which is shown in Figu e [3]: 4 Al hough la e , in 1995, we e cons i u ed he S a u es o he wo Au onomous ci ies, Ceu a and Melilla. These ha e been excluded om ou analysis due o da a a ailabili y. 5 Andalusia, Basque Coun y, Cana y Islands, Ca alonia, Galicia, Na a e and Comunidad Valenciana. 6A agon, As u ias, Balea ic Islands, Can ab ia, Cas ile La-Mancha, Cas ile and Leon, Comunidad de Mad id, Ex emadu a, Mu cia and La Rioja. 7 Figu e [3] abou he e A deepe analysis o he unc ional ca ego ies7 e eals ha he ca ego y "Social Public Goods" -using he nomencla u e o he unc ional classi ica ion used by he Spanish "Minis e io de Economía y Hacienda"- is he main a ea o decen aliza ion o he egions wi h a low le el o compe encies as well as he main componen o he public budge . O he unc ional ca ego ies ha ha e expe ienced a signi ican le el o decen aliza ion ha e been "Social Secu i y and P omo ion", "Economic egula ion o P oduc i e Sec o s", "Gene al Public Se ices" and "Economic Public Goods" While he le el o iscal au onomy is almos iden ical among he egions wi h low le el o compe encies, iscal compe encies among he egions wi h high le el o compe encies is mo e he e ogeneous8. This is also e lec ed in he dis ibu ion o he e enue-side o he budge shown in Figu e 4. In pa icula , wo o he egions (Basque Coun y and Na a e) ha e pa icula p i ileges abou he collec ion o axes in hei e i o y. Spanish egional inancing scheme has gone h ough se e al e isions o e ime (See Lopez-Labo da, 2006; De la Fuen e, 2010). Fo he ime window analyzed in his pape , he e ha e been h ee di e en sys ems in o o ce (1991-1996; 1997-2001; and 2002-2008). These e isions ha e es ablished, subsequen ly, a la ge sha e o ax e enues in he budge o egional go e nmen s as well as la ge leeway o decide on he le el o axa ion, and no ma i e capaci y o es ablish o abolish ce ain axes. The edis ibu i e mechanism, howe e , has no been modi ied un il he e ision implemen ed on 2009 (See Bassols e al., 2010) which is ou side he pe iod unde conside a ion in his pape . [Figu e 4 abou he e] Bo h g oups o egions a e no ep esen ing ei he geog aphical concen a ion o economic cha ac e is ics, meaning ha he e is no o he common denomina o be ween egions wi h high le el o 7 See González-Aleg e (2010) 8 See Mole o (2001) 8 au onomy o be ween egions wi h low le el o au onomy o he han hei poli ical s a us. In bo h g oups o egions he e a e objec i e 1 egions (which a e eligible o mos o he S uc u al Funds) and egions wi h pe capi a income la ge han he na ional and Eu opean a e ages. Figu e [5] has he pu pose o showing ha he e is no sys ema ic di e ence in he amoun o S uc u al Funds om he EU ha bo h g oups o egions ecei e. Figu e [5] abou he e The inc ease in he size egional go e nmen s has also a ec ed he dis ibu ion o public egional spending among he di e en economic ca ego ies. The egions ha e augmen ed he sha e o cu en spending, de o ing a mino pa o hei unds o inc easing hei s ock o capi al (Figu e [6]). One migh hink ha his si ua ion could be induced by a ce ain ealloca ion o compe encies be ween he cen al and egional go e nmen s. Howe e , he Cen al Go e nmen has no inc eased i s sha e o capi al expendi u e, bu has, on he con a y, sligh ly dec eased i . The all in he capi al sha e o public expendi u e is clea ly mo e ele an in he egions wi h low le els o compe encies, which a e also hose ha ha e unde gone a mo e p o ound p ocess o decen aliza ion. Figu e [6] abou he e 3. MODELLING FISCAL DECENTRALIZATION This sec ion shows how heo e ical p edic ions abou he impac o in e go e nmen al g an s on public adminis a ions gaining iscal au onomy wi hin a ede a ion, depend la gely on he assump ions used o model iscal au onomy. As men ioned be o e, he exis ence o heo e ical models ha combine iscal decen aliza ion and in e go e nmen al g an s is ela i ely limi ed. 9 Ne e heless, he li e a u e abou he condi ions ha make iscal decen aliza ion desi able is ex emely p oli ic9. A gumen s in a ou o iscal decen aliza ion ely la gely on p e e ence he e ogenei y o public goods p o ision among egions (Besley and Coa e, 2003; B ueckne , 2005; Rubinchick- Pessach, 2005) and i s impac on mul i ac o p oduc i i y (Ma ínez-Vazquez and McNab, 2006) while a gumen s agains a e usually based on in e naliza ion o spillo e e ec s among egions (Chu and Yang, 2012) , s a egic beha iou owa ds edis ibu ion (Oa es, 2005) o iscal compe i ion (Lei e- Mon ei o and Sa o, 2003; Ha iel and Pad o, 2008). Fo he sake o his pape , howe e , i is impo an o dis inguish be ween iscal au onomy based on he capaci y o decide on he dis ibu ion o he public budge –bo h in he expendi u es and he e enues side o he budge - and iscal au onomy a ec ing he mechanisms o egional edis ibu ion o income. Based on one o he sub-games10 included in Volden (2007), le us assume a sub-na ional go e nmen which ac s as a ep esen a i e agen o i s cons i uen s and ha bene i s om p o iding an in es men good and keeping axes low, so ha : Us = (yi) c,s – ( s + n) b,s - d - xs The u ili y o he sub-na ional go e nmen depends posi i ely on income, which is ela ed o he public in es men good acco ding o he p oduc ion unc ion yi=iqi. The unc ion c,s ep esen s he ac ion o c edi ha he sub-na ional go e nmen ob ains om he p o ision o he public in es men good; s and n ep esen axes issued by he sub-na ional and na ional go e nmen s espec i ely, and b,s ep esen s he ac ion o blame ha he sub-na ional go e nmen ob ains om axa ion. Finally, he las e m cap u es he disu ili y associa ed om aking a policy di ec ion which de ia es, in a one dimensional line, om he op imal di ec ion p e e ed by he ep esen a i e agen s. 9 Being Oa es (1972) conside ed as he blas -o ha s imula ed mos subsequen esea ch. An in ui i e e iew o he e olu ion o he li e a u e may be ound in Weingas (2009) 10 In oducing wo main inno a ions o he model: he conside a ion o a public in es men good ins ead o a consump ion good an he in oduc ion o a edis ibu i e mechanism among sub-na ional go e nmen s. 16 In o de o es he hypo hesis ha public in es men may be a ec ed by Eu opean S uc u al Funds ' g an s, we ha e cons uc ed a model in which he dependen a iable is Public In es men a he egional le el o he se en een Spanish egional bodies. The se o explana o y a iables includes ou main a iable o in e es , EUSF, ep esen he capi al ans e s om he EU o he egional go e nmen alloca ed o he egion "i" in he cu en yea " ". We ha e also in oduced in he model o he con ol a iables: p i a e in es men , public consump ion, GDP g ow h, popula ion g ow h, and cen al go e nmen in es men , included in he ec o x: i, i, i, ,PubIn = eus + x + i i      (1) Whe e  is he coe icien ha desc ibes he impac o S uc u al Funds on Public In es men and he main a ge o ou es ima ion; x is a ec o , (1x5), o explana o y a iables and  is he se o pa ame e s, (5x1) associa ed o hese con ol a iables ha mus be es ima ed; i  is he unobse able uni -speci ic e ec and ,i  is he unobse able e o e m. In o de o es ima e equa ion (1), we ha e spli he sample a ending o he le el o iscal au onomy o he egions. We ha e aken wo al e na i e c i e ia in o conside a ion in o de o conside sub-samples: i s ly, we ha e classi ied Spanish egions in o wo subg oups acco ding o he le el o iscal au onomy ha he Spanish Cons i u ion ecognizes hem. The e o e, we c ea e a g oup o wha he Spanish Cons i u ion conside s16 “His o ic Na ionali ies”, and a second g oup o he emaining en egions17, o which he Cons i u ions ecognized a lowe le el o Au onomy. And secondly, as a obus ness check, we ha e also conside ed he ime-dimension o he se ies in o de o iden i y wo al e na i e subg oups wi h ema kable di e ences in hei le el o iscal au onomy. We ha e selec ed he yea 2000 as he b eak poin , which will lea e us wo subsamples o simila leng h. 16 Andalusia, Basque Coun y, Cana y Islands, Ca alonia, Galicia, Na a e and Valencian Communi y. 17 A agon, As u ias, Balea ic Islands, Can ab ia, Cas ile and Leon, Cas ile-La Mancha, Ex emadu a Comunidad de Mad id, Mu cia, La Rioja. 17 The e olu ion o iscal au onomy ac oss ime in bo h subsamples is qui e s able in bo h g oups o egions18 al hough wi h a ema kable gap be ween egions wi h low and high le el o compe encies. The use o wo al e na i e c i e ia o di ide he sample will le us o e come some o he sho comings which a e a ached o each c i e ion. On he one hand, spli ing he sample acco ding o he ole ecognized in he Cons i u ion may a ise he doub ha we may be accoun ing o a sys ema ic di e ence be ween bo h g oups o egions ha may no come om he le el o iscal au onomy bu om an igno ed sou ce19. On he o he hand, b eaking he sample in o wo ime-pe iods may be in e p e ed as he iden i ica ion o some s uc u al change ac oss ime. P ima y es ima ions o equa ion (1) sugges he p esence o au oco ela ed e o s. The e o e, he o iginal model in equa ion has been es ima ed in he p esence o se ially co ela ed e o s20. Ini ially, we also assume s ic exogenei y o he explana o y a iables ( ,,[ , ] 0i s i Ex   ; ,s=1,2,...T). This assump ion may be conside ed oo s ong o ou model. Many esul s21 show ha he alloca ion o public expendi u e may be endogenous o he alloca ion o g an s. The dis ibu ion o he S uc u al Funds may be hough o espond o some unobse ed necessi ies and conjunc u e ha simul aneously d i es decisions on public in es men . We mus admi he possibili y ha some o he explana o y a iables, in pa icula eus , mus be co ela ed o he e o e m since he p opensi y o inc ease public in es men may incen i e la ge alloca ion o S uc u al Funds ( hus, making causali y un in he opposi e di ec ion o he one assumed in he pape ). The immedia e solu ion o he p oblem could be o ind some ins umen al a iables co ela ed o s uc u al unds bu o hogonal o public in es men . Al e na i ely, we can use lags o he dependen and explana o y a iables as ins umen s. The GMM es ima ion me hod de eloped by A ellano and 18 See González-Aleg e (2008) 19 Despi e he ac ha he e a e no ema kable di e ences in he le el o economic de elopmen among bo h g oups o egions. Nei he he e a e geog aphical, comme cial o cul u al di e ences among hem. 20 P elimina y es ima ions sugges also he use o ixed-e ec s models. The esul s o he andom e ec s es ima ions, as well as he Hausman es a e omi ed o he sake o b e i y. 21 Knigh , 2002; Becke , 1996; Besley and Case, 2000. 18 Bond (1991) elies on he o hogonali y o he dependen and explana o y a iables wi h he i s di e ences o he e o componen in lagged pe iods. This me hod allows us o include endogenous and p ede e mined dependen a iables. These GMM me hods cons uc momen condi ions ha e lec his o hogonali y, unde assump ion o se ially unco ela ed shocks, e o componen s and p ede e mined ini ial condi ions22. The p oblem would be, he e o e, ha we ha e p e iously admi ed he possibili y o he exis ence o AR(1) e o s in he o iginal model, which implies ha lagged alues o he dependen and explana o y a iables a e co ela ed wi h pas shocks and he momen condi ions ha should be used23, a e no longe alid in he o iginal model Fo ha eason, we ans o m he s a ic model in o a dynamic one wi h se ially unco ela ed shocks by sub ac ing he au oco ela ion e m a ached o he o iginal e o s: i, i, i, ,PubIn = eus + x + i i      whe e , , ,1i i i e e u     i, i, i, i, i, i, ,PubIn = *PubIn + eus - eus + x - x +(1- ) i i u         (2) Equa ion (2) ep esen s a model wi h se ially unco ela ed shocks ha we can es ima e using A ellano and Bond (1991) GMM es ima o o dynamic panels. The explana o y a iables a e co ela ed wi h he indi idual e ec s and a e assumed o be endogenous wi h espec o he se ially unco ela ed shocks. Es ima ion Resul s. Table 3 shows he esul s o es ima ing equa ions (1) and (2) when we di ide ou sample acco ding o he le el o au onomy ecognized o he egions in he Spanish Cons i u ion. Columns [1] o [4] include he es ima ion o he egions wi h a lowe le el o au onomy while 22 ,,[ ] [ ] [ ] 0i i i i E E E        ; ,,[ ] 0i s i E   o s and ,1 ,[ ] 0i i E PubIn   =2,...T espec i ely. 23 ,,[ ] 0i s i E PubIn   o =3,…T and 2s ; ,,[ ] 0i s i Ex   , o =3,…T and 2s i a iables in x a e endogenous 19 columns [5] o [8] include he es ima ions o he emaining se en egions wi h a la ge le el o iscal au onomy. Columns [1]-[2] and [5]-[8] assume a ixed-e ec s24 model wi h au oco ela ed e o s, while [3]-[4] and [7]-[8] a e es ima es o equa ion (2) ob aining assuming engogenei y o explana o y a iables using one-s ep e sion o he GMM es ima o de eloped by A ellano and Bond (1991). In addi ion, we assume wo se s o con ol a iables, one mo e gene al and one mo e es ained. Resul s a e qui e homogeneous among models o e e y se o egions. The S uc u al Ac ions (eus ) seem o be a signi ican de e minan o Public In es men in he egions wi h low le el o compe encies, being he coe icien es ima ed signi ican ly posi i e 0 and smalle han one. Howe e , o he egions wi h a high le el o compe encies, he coe icien s es ima ed a e smalle and gene ally insigni ican ly di e en om ze o. As o he emaining con ol a iables, he main sou ce o a iabili y be ween bo h da a-se s in he coe icien a ached o Public Consump ion ha show a beha iou qui e simila o he one desc ibed o eus . Public consump ion will cap u e he e ec s o he size o he egional adminis a ion. I is expec ed o inc ease wi h la ge iscal au onomy and, he e o e, induce u he inc eases also in Public In es men . P i a e in es men is a posi i e de e minan o Public In es men in all cases while he emaining con ol a iables do no seem o play a key ole. Ha ing es ima ed a di e en e ec o he S uc u al Ac ions on Public In es men o he wo g oups o egions, we also make a second es ima ion by spli ing he sample h ough he ime dimension. I we examine Figu e [3], we can see how he le el o iscal au onomy o bo h g oups o egions has inc eased o e ime. By spli ing he sample a ound yea 2000, he le el o iscal au onomy emains ela i ely s able o bo h g oups o egions ac oss ime25, keeping a signi ican di e ence among hem. The esul s o he equi alen es ima ions a e shown in Table [4]. We ha e es ima ed an impac o he 24 The selec ion o he ixed-e ec s model has been made upon es ima ion o he equi alen andom-e ec s model and he co esponding Hausman (1979) es . Aco dingly, he au oco ela ed e o s ha e been included upon es ima ion o p elimina y models. 25 See González-Aleg e (2010) 20 EUSF on Public In es men la ge and signi ican ly posi i e o he pe iod 1993-1999, while he es ima es o he pe iod 2000-2007 show poo le els o signi icance. Rega ding Public Consump ions, he di e ences obse ed in he p e ious es ima ion emain bu a e less s ong. The beha io o he o he con ol a iables emains s able. In e ac ion Te m In o de o ake in o accoun o he e ec o he e olu ion Fiscal Decen aliza ion on he ela ionship be ween he S uc u al Ac ions and Public in es men , we will make use o an In e ac ion e m. In e ac ion e ms may be added o a model in o de o inco po a e he join e ec o wo a iables on a dependen a iable, o e and abo e hei sepa a e e ec s. These a e usually added as he c oss-p oduc o wo independen a iables, ypically placing hem a e he simple "main e ec s". In his subchap e , we will analyze he in e ac ion o iscal decen aliza ion ( ep esen ed by he a iable “dec”) and he capi al ans e s ecei ed by egional go e nmen s ( ep esen ed by “eus ”). The sepa a e e ec o bo h a iables a e expec ed o be posi i e, since an inc ease in he le el o iscal decen aliza ion (measu ed as he a io o pe capi a egional o e na ional public expendi u es) is assumed o inc ease he size o egional go e nmen s and, he e o e, inc ease on public expendi u es – comp essi e o public in es men -. The e ec o he capi al ans e s h ough he S uc u al Ac ions (eus ) would ollow he a gumen s examined in he p e ious subchap e . i, (1) i, (2) (3) i, ,PubIn = eus + dec+ eus *dec+ x + i i        (3) The in e ac ion e m would cap u e, he e o e, he join e ec o hese wo a iables. We can see in able 5 he esul s o es ima ing he model ep esen ed by equa ion (3) o he whole sample. We ha e expanded ou se o al e na i e con ol a iables, since we expec ed ha he co ela ion be ween “Public Consump ion” and “dec” migh be p oblema ic. The esul s, howe e , look qui e obus wi h 21 espec o his issue. As o he es ima ion assump ions and me hodology, we ha e ollowed simila guidelines as ables 3-4. We ha e es ima ed a nega i e coe icien a ached o he in e ac ion e m in all cases. The le el o signi icance, howe e , is a iable and seems o depend on he se o con ols. The nega i e coe icien means ha he join e ec o addi ional decen aliza ion and public in es men becomes weake . I we assume a ixed le el o decen aliza ion, o example, addi ional EUSF will induce an e ec on Public in es men equal o he coe icien es ima ed o EUSF plus he coe icien es ima ed o he in e ac ion e m mul iplied by he alue o decen aliza ion. Gi en ha he coe icien es ima ed o he in e ac ion e m is nega i e, he e ec o EUSF on public in es men is posi i e, bu dec easing o la ge decen aliza ion. C oss-p oduc in e ac ion e ms may be highly co ela ed wi h he co esponding simple independen a iables in he eg ession equa ion, c ea ing p oblems wi h assessing he ela i e impo ance o main e ec s and in e ac ion e ec s. Because o his, some imes i may well be desi able o use cen e ed a iables (whe e one has sub ac ed he mean om each da um). This ans o ma ion o en educes mul icollinea i y. Fo he sake o obus ness, we ha e also un equi alen es ima ion using a cen e ed in e ac ion e m and he esul s do no change signi ican ly (see able 6) Simul aneous Equa ion model We wan o check he obus ness o ou esul o he in oduc ion o a simul aneous equa ion model (SEM), in which we cap u e causali y in bo h di ec ions. One could hink ha he wo a iables in which we ocus ou in e es : eus and public in es men , a e join ly de e mined by a sys em o equa ions. In ac , he poli ical decision o in es ing is closely ela ed o he poli ical decision o alloca ing –o making use o - he S uc u al Funds. Also he economic ealiza ion o he paymen s is closely ela ed, gi en ha bo h a iables a e o en ela ed o common in es men p ojec s. In addi ion, each one o he a iables may be a de e minan o he o he one. So a we ha e conside ed ha he 22 alloca ion o S uc u al Funds may encou age Public In es men , bu me mus be awa e ha he p opensi y o in es in he public sec o may also incen i e he alloca ion o S uc u al Funds in a pa icula egion. The sys em consis s o wo s uc u al equa ions, one in which he dependen a iable is Public In es men , while in he o he he capi al ans e s alloca ed h ough he S uc u al Funds. Each o he equa ions includes one o he a iables as dependen a iable bu also he o he one as an explana o y – endogenous- a iable. In addi ion o hese, we also include a se o exogenous a iables26: i, (1) i, (1) (1)i, (1) (1) ,PubIn = eus + x + i i      (4) i, (2) i, (2) (2)i, (2) (2) ,eus = PubIn + x + i i      (5) Whe e (1) x and (2) x a e wo ec o s, (1xm) and (1xn) espec i ely, o exogenous explana o y a iables. Bo h ec o s a e no iden ical, bu hey can sha e some a iables. (1)  and (2)  a e he se o pa ame e s, (mx1) and (nx1) espec i ely, associa ed o he exogenous a iables ha mus be es ima ed. (1)i  and (2)i  a e he unobse able uni -speci ic e ec s and (1) ,i  and (2) ,i  a e he unobse able e o e ms. We es ima e he model abo e ollowing di e en al e na i e es ima ion me hods in o de o check o he obus ness o he esul s27. Fi s o all, we assume ha he sou ce o endogenei y is p esen h ough a posi i e co ela ion be ween he endogenous a iables and he e o e m (1) ,i  . In his se up, he model may be es ima es assuming Fixed-E ec s h ough wo-s age leas -squa es (FE-2SLS) and 26 One migh be emp ed o hink ha Public Cu en Expendi u es should ake pa o he simul aneous equa ions model as an endogenous a iable. As Woold idge (2002) desc ibes o an example ela ing hou s de o ed o c ime wi h hou s de o ed o wo k, he choice o he sha e o he public budge de o ed o cu en expendi u es and o in es men is he solu ion o he maximiza ion p oblem o he u ili y unc ion o he go e nmen and depends on exogenous ac o s –like he popula ion, le el o educa ion, p i a e in es men , e c-. O cou se, some endogenei y may a ise when es ima ing he ela ions among bo h a iables, bu we conside ha his possibili y is mo e ela ed o an omi ed a iables p oblem –o e en o measu emen e o - a he han o simul anei y. The case o Public In es men and Capi al T ans e s (EUSF) is di e en since in his case bo h expenses a e acc ued simul aneously when e e ed o he same in es men p ojec . 27 We use limi ed in o ma ion es ima o s, which means ha e e y equa ion o he sys em is es ima ed a a ime, in con as o ull-in o ma ion sys ems, in which he es ima o s a e based on he en i e sys ems o equa ions. 23 assuming Random-E ec s h ough he E o -Componen wo-s age leas -squa es es ima o de eloped by Bal agi (1981)28. Resul s ob ained using his es ima ion s a egy a e p esen ed in able 8. Al e na i ely, we may assume ha he sou ce o endogenei y comes om he posi i e co ela ion be ween he idiosync a ic e m and he endogenous a iables. The explana o y a iables a e, hen, o hogonal o he s uc u al e o s and he exogenous a iables a e, in addi ion, o hogonal o he idiosync a ic e m,  . I we assume Fixed-E ec s, he model can be es ima ed by OLS a e he wi hin ans o ma ion, as shown by Co nwell e al. (1992). Fo he cases in which he uni -speci ic e ec s a e andom, we make use o he Two-s age leas -squa e Hausman and Taylo (1981) p ocedu e (HT-2SLS) es ima o 29. The me hod o 2SLS is he mos common me hod used o es ima ing simul aneous-equa ions models, because o hei simplici y and asymp o ic e iciency. In his case, we include also addi ional a iables on equa ions (6) and (7), (1) z and (2) z espec i ely, which a e wo ec o s o ime-in a ian explana o ies, including bo h endogenous and exogenous a iables: i, (1) i, (1) (1)i, (1) (1)i (1) (1) ,PubIn = eus + x + z + i i       (6) i, (2) i, (2) (2)i, (2) (2)i (2) (2) ,eus = PubIn + x + z + i i       (7) Usually, as we a e no in e es ed in hei e ec , ime-in a ian a iables a e omi ed since hei e ec may be cap u ed by he idiosync a ic- e m. Howe e , o he HT 2SLS es ima o , hey a e used as ins umen s o es ima e he sys em, so i may be use ul o include hem. We desc ibe in able 7 he ime in a ian a iables included in he HT 2SLS eg ession. These a e, basically, de e minan s o he In es men needs and economic pe o mance a he beginning o he sample and i s selec ion has been made upon consul a ion o se e al s udies add essing public in es men 30. Resul s upon he assump ion ha he endogenous a iables a e co ela ed wi h he uni -speci ic e m a e shown in able 9. 28 See Bal agi (2005) o de ails on his es ima o . 29 The e a e al e na i e p ocedu es o he HT, o example he Amemiya and Mc Cu di (1986) o he B eusch e al. (1989), which make use o addi ional ins umen s bu a he cos o addi ional assump ions abou he exogenei y o he explana o y a iables and all hei u u e and pas alues. See Co nwell e al. (1992) o a de ailed desc ip ion o he di e en es ima o s and hei p ope ies. 30 Wi h a pa icula a en ion o Mi ze (2007), since he uses also his simul aneous equa ion es ima o 24 Bo h, ables 8 and 9, show simila esul s wi h espec o mos o he a iables unde conside a ion. The esul s p e iously obse ed wi h espec o he impac o he S uc u al Funds on Public in es men a e ein o ced in a e his es ima ion, al hough i mus be s essed ha he op ion in which we assume ixed-e ec and o hogonali y o he endogenous a iables wi h he e o e m ( able 9) yields poo signi ican coe icien s. Public In es men , simul aneously, seems o be a key de e minan o he olume o S uc u al Funds alloca ed o each egion in each pe iod, al hough he coe icien s a ached o his di ec ion o he causali y a e signi ican ly smalle han hose om equa ion (4) and (6). Decen aliza ion is a posi i e de e minan o public in es men . This esul was know om he p e ious es ima ions o he pape and i was also expec ed, since he a iable iscal decen aliza ion is an indica o o he size o he egional go e nmen 31 and, he e o e, o i s expendi u e powe . Ne e heless, we ind a signi ican nega i e coe icien when es ima ing he impac o iscal decen aliza ion on he S uc u al unds (equa ions (5) and (7)). A a i s glance, one migh be emp ed o hink ha a e inc easing he le el o iscal au onomy o a egion, Public in es men may be sp ead o e mo e he e ogeneous policy a eas. This expansion may be a ached o compe encies ha a e no eligible o he S uc u al Funds, educing, he e o e, he possibili y o he go e nmen o main ain he ela ionship be ween S uc u al Funds and public in es men . The coe icien es ima ed o he exogenous a iables a e, in gene al, expec ed and consis en ac oss models. Among hem, he le el o signi icance o “popula ion g ow h” as a nega i e de e minan o public in es men becomes ele an wi h espec o p e ious subchap e s o his pape . 3131 As well as he a iable “Public Consump ion. In ac , one migh expec a signi ican le el o colinea i y be ween bo h a iables, which would jus i y he use o he al e na i e models es ima ed, as in oduced be o e. 25 Tables 10 and 11 eplica e he SEM es ima ion a e spli ing he sample in o he g oup o egions wi h low le el o compe encies and he egions wi h high le el o compe encies. Table 10 p esen s he esul s assuming ha he sou ce o he endogenei y is he co ela ion o he a iables wi h he uni -speci ic e ec , while able 11 assumes co ela ion wi h he e o e m. We ha e es ima ed only he educed e sions o he models assuming bo h, andom and ixed-e ec s. The es ima ions ha e o be aken cau iously since he numbe o obse a ions is a bi limi ed. In gene al, he coe icien s es ima ed o he egions wi h low le el o au onomy a e la ge in absolu e alue and le el o signi icance o he a iables o ou in e es which is in line wi h ou p e ious esul s. Public in es men , as a de e minan o EUSF is s onge also in he egions wi h low le el o au onomy, while in he egions wi h high le el o au onomy, EUSF seem o depend e y ew o he p opensi y o he go e nmen o in es . Finally, also he le el o iscal decen aliza ion as a de e minan o EUSF seems o be mo e – nega i ely- impo an in egions wi h low le el o au onomy. Tha is somehow an expec ed esul since hese egions ha e expe ienced he la ge decen aliza ion p ocess and, in any case, con i ms ou p e ious suspicious ha by gaining iscal au onomy egions ind i mo e di icul o be eligible o addi ional g an s. 6. CONCLUSIONS The impac and e iciency o he S uc u al Ac ions ca ied o e by he Eu opean Union in o de o enhance sus ainable de elopmen in Eu opean Regions may depend o he le el o iscal ede alism o he Membe S a es. In his pape , we add ess he pa icula case o he S uc u al Ac ions designed o enhance Public In es men in key a eas o g ow h. Spain has expe ienced a p ocess o iscal decen aliza ion in he ecen yea s and, simul aneously, has been ecipien o an impo an sha e o he S uc u al Ac ions. Due o he he e ogeneous le el o economic de elopmen and also o he di e se poli ical s a us o Spanish egions, bo h policies ha e a ec ed hese egions in an asymme ic way. These condi ions make Spanish egions he pe ec 32 Woold idge, JM (2002) Econome ic analysis o c oss sec ion and panel da a. MIT p ess, Camb idge, MA Zhang, T, Zou, HF (1998) Fiscal decen aliza ion, public spending and economic g ow h in China. Jou nal o Public Economics 67: 221-240 Appendix. Table A1. Fiscal Decen aliza ion and Eu opean Cohesion Policy: P e ious Empi ical S udies wi h Spanish egional da a. 33 Au o /s (yea ) Main Issue Da a co e age Me hodology Main Resul s Al á ez e al. (2000) The impac o iscal decen aliza ion on he size o he public sec o Spanish public sec o a he egional le el, 1993 Es ima ion o a model o c oss- sec ional da a Fiscal decen aliza ion has a nega i e impac on he size o he public sec o Mole o (2002) Public Spending and Fiscal Fede alism in Spain Spanish Public Adminis a ions, 1988 1998 Desc ip i e S a is ics Fiscal decen aliza ion is mo e ela ed o Public Expendi u e ela ed o economic in e en ion in egions wi h low le el o compe encies, while in egions wi h a high le el o compe encies is mo e ela ed o Redis ibu ion. De la Fuen e (2002) Impac o EU Cohesion Policy on Spanish Objec i e 1 Regions Spanish Region- le el da a, 1994-2006 Panel-da a es ima ion o g ow h model, and calib a ion o he impac . The EU Funds add one pe cen age poin o annual ou pu g ow h in and 0.4 pe cen age poin s o employmen g ow h. Pa do Ga cia (2003) Eu opean Cohesion Policy in Spanish Regions Spanish Regions, 1988-1999 Desc ip i e analysis o he Communi y Suppo F amewo k The weakes egions ha e imp o ed hei in as uc u es, bu he e a e many di e ences abou hei inno a ion capaci y, knowledge access, in o ma ion, and he aining o human esou ces. Fa ell (2004) E ec o Eu opean Cohesion Policy on Spanish and I ish Economies. Na ional- le el da a, 1990-2000 Desc ip i e S a is ics EUSF p omo ed economic g ow h, bu mo e e icien ly in I eland. In Spain, egional dispa i ies ac ually inc eased. Pa o he explana ion lies wi h he ins i u ional di e ences and policy decisions aken in each Public Adminis a ion. Sos illa Ri e o (2005) Impac o EUSF on g ow h and employmen Spanish Objec i e 1 Regions (1989 2006) Adap a ion o he HERMIN model o he Spanish egions (demand and supply e ec s o he EUSF). A e age inc ease o 0.56 pe cen age poin s in he g ow h a es . A e age inc ease in pe capi a income o 425 eu os a 1999 p ices. Inc ease o 1.46 pe cen in employmen . Pe ez González and Can a e o P ie o (2006) Fiscal decen aliza ion and Economic G ow h Spanish Regional Da a, (1986- 2001) Panel da a model. Fixed-E ec s and Ins umen al Va iables. The impac o iscal decen aliza ion on economic g ow h is insigni ican . Gil-Se a e and López- Labo da (2005) Tax- decen aliza ion and economic g ow h Spanish na ional and egional da a, 1980- 1997 Calib a ion o g ow h model ha accoun s o ax decen aliza ion An inc ease in he le el o ax decen alisa ion in he Spanish economy compa ed o he le el exis ing in he aken pe iod would esul in economic g ow h. Ca ion-i- Con ibu ion o Spanish Panel Da a model Fo he egions wi h highe le el o 34 Sil es e, Espasa and Mo a (2008) iscal decen aliza ion o economic g ow h Regional Da a, 1964- 2000 es ima ed by GMM compe encies, iscal decen aliza ion has posi i e and signi ican e ec s on economic g ow h, bu iscal decen aliza ion has nega i e e ec s on he egions wi h lowe le el o compe encies. González- Aleg e (2012) E ec i eness o EU S uc u al Ac ions; 1993-2005 EU15 and Spanish egional da a Panel Da a model es ima ed by GMM Public in es men in he membe coun ies makes up a ound 60% o he inc ease in EU unds. Figu es 35 FIGURE 1: Sha es o Public Expendi u e by le el o adminis a ion Sou ce: Eu os a , Go e nmen Finance S a is ics FIGURE 2: Ra io o s a e and local public expendi u e o gene al go e nmen expendi u e. 1995 2007. 0 0.1 0.2 0.3 0.4 0.5 0.6 Aus ia F ance Ge many G eece I aly Po ugal Spain UK 1995 1999 2003 2007 Sou ce: Eu os a , Go e nmen Finance S a is ics. 36 FIGURE 3: Decen aliza ion Ra io. Ra io o pe capi a public expendi u e o he egional go e nmen o he pe capi a public expendi u e o he cen al go e nmen (excluding social secu i y). Sou ce: Badespe and “Liquidación del p esupues o de las CC AA” FIGURE 4: Sou ces o Re enues as pe cen age o GDP 37 FIGURE 5: Capi al ans e s om he EU o he Spanish egional go e nmen s. (% GDP and Eu o pe capi a) Sou ce: “Liquidación del p esupues o de las CCAA” FIGURE 6: Ra io Capi al o To al Expendi u e Sou ce: “Liquidación del p esupues o de las CCAA” 38 Tables TABLE 1: Va iables and sou ces o da a Va iable Label De ini ion Uni s Sou ce Public In es men PubIn G oss ixed capi al o ma ion in he Regional Go e nmen %GDP Badespe da abase (Ins i u o de Es udios Fiscales, Minis y o Economy) EU S uc u al Funds EUSF EU expendi u e execu ed co esponding o S uc u al unds, by Membe S a e. %GDP Liquidación de P esupues os de las CC AA, Minis y o Economy Public Consump ion PCons Public Cu en expendi u e in he Regional Go e nmen %GDP Badespe da abase P i a e In es men P i In In es men o angible and in angible asse s in he p i a e sec o %GDP IVIE (Valencian Ins i u e o Economic Resea ch) Cen al Go e nmen In es meng CGIn Public in es men om he cen al go e nmen disagg ega ed a he egional le el %GDP 1984-1999 IVIE 2000-2007 PGE (Gene al Public Budge ) GDP g ow h GDPg Real GDP g ow h G ow h a e INE (Na ional S a is ical O ice) Popula ion g ow h Popg Popula ion in miles pe sons G ow h a e Eu os a Fiscal Decen aliza ion DEC Ra io o pe capi al public expendi u e o he egional go e nmen o pe capi al public expendi u e o he cen al go e nmen Ra io Badespe da abase (Eu os a o popula ion) TABLE 2: Summa y S a is ics Va iable Obs Mean S d. De . Min Max PubIn 255 0.0285 0.012 0.0054 0.0586 EUSF 255 0.0054 0.005 0.0000 0.0307 PCons 255 0.1011 0.048 0.0144 0.2213 P i In 255 0.2335 0.043 0.1404 0.3702 CGIn es 255 0.0180 0.010 0.0017 0.0681 GDPg 255 0.0735 0.027 0.0152 0.2088 POPg 255 0.0083 0.010 -0.0046 0.0383 DEC 255 0.5700 0.295 0.1055 1.6255 DEC*EUSF 255 0.0030 0.003 0.0000 0.0164 39 TABLE 3: The impac o S uc u al Ac ions on Regional Public In es men . Regions wi h di e en le els o Au onomy [1] [2] [3] [4] [5] [6] [7] [8] Regions wi h low le el o compe encies (a . 151) Regions wi h high le el o compe encies (a .143) F-E F-E GMM-AB GMM-AB F-E F-E GMM-AB GMM-AB PubIn ( -1) 0.5081*** 0.4679*** 0.6888*** 0.7257*** 0.080 0.077 0.080 0.071 eus 0.5913*** 0.5981*** 0.6366*** 0.5858*** 0.0176 0.0092 0.3573* 0.2690 0.143 0.142 0.156 0.152 0.184 0.178 0.217 0.219 PubCons 0.0647*** 0.0526** 0.0732** 0.0693*** 0.0451 0.0533 0.1075 0.1102* 0.023 0.021 0.028 0.027 0.054 0.048 0.071 0.061 P i In 0.0820*** 0.0782*** 0.0847*** 0.0815*** 0.0656*** 0.0624*** 0.0611*** 0.0623*** 0.020 0.020 0.025 0.025 0.019 0.018 0.022 0.022 CGIn es -0.0322 0.0280 -0.1112 -0.0215 0.066 0.074 0.124 0.131 GDPg -0.0131 -0.0270* -0.0031 -0.0121 0.012 0.016 0.009 0.013 POPg -0.1418 -0.1138 0.0235 0.0285 0.120 0.140 0.113 0.112 F es g oup 4.33 (.001) 7.26 (.000) 6.15 (.000) 6.78 (.000) R2 wi hin 0.321 0.3092 0.152 0.1502 Au oco . Tes D-W = .7933 D-W = .7951 AB(1) -2.67 (.00) AB(1) -2.65 (.00) D-W = .6732 D-W = .5007 AB(1) -1.97 (.04) AB(1) -1.96 (.04) B-W = .9651 B-W = .9639 AB(2) 1.18 (.23) AB(2) 1.38 (.16) B-W= 1.0279 B-W= .8483 AB(2) 0.76 (.44) AB(2) 0.17 (.86) Sa gan es 94.743 97.339 75.742 78.676 s a 0.77 0.75 0.35 0.39 Obs (g oups) 140 (10) 140 (10) 130 (10) 130 (10) 98 (7) 98 (7) 91 (7) 91 (7) *,**,*** deno e signi icance le els a he 10%, 5% and 1% espec i ely Ab(o de ) deno es A ellano and Bond (1991) es o au oco ela ion in he e o e m D-W: modi ied Du bin-Wa son es o au oco ela ed e o s; B-W: Bal agi Wu LBI 40 TABLE 4: The impac o S uc u al Ac ions on Regional Public In es men . Time-E olu ion [1] [2] [3] [4] [5] [6] [7] [8] 1993-1999 2000-2007 F-E F-E GMM-AB GMM-AB F-E F-E GMM-AB GMM-AB PubIn ( -1) 0.4551*** 0.3934*** 0.1643 0.0831955 0.108 0.096 0.115 0.107 eus 0.5886*** 0.5884*** 0.7426*** 0.4373** 0.0851 0.1854 0.0316 0.0562522 0.165 0.161 0.237 0.222 0.220 0.215 0.236 0.244 PubCons 0.0929* 0.1021** 0.0907 0.1182* 0.0232 0.0338 0.1027** 0.0947564 0.047 0.044 0.068 0.069 0.035 0.034 0.047 0.037 P i In 0.0669** 0.0705*** 0.0467 0.0628* 0.0623** 0.0619** 0.1199*** 0.1281358 0.028 0.025 0.037 0.032 0.024 0.024 0.041 0.037 CGIn es -0.0148 0.1040 -0.1555* -0.00038 0.130 0.180 0.081 0.123 GDPg -0.0072 -0.0349*** -0.0051 0.0166 0.008 0.013 0.040 0.048 POPg 0.0167 -0.4982 -0.1063 -0.1841 0.252 0.463 0.120 0.176 F es g oup 3.52 (.000) 3.73 (.000) 9.79 (.000) 14.21 (.000) R2 wi hin 0.3059 0.2973 0.142 0.0997 Au oco . Tes D-W = .9509 D-W = .8448 AB(1)-2.26 (.02) AB(1)-2.04 (.04) D-W = 1.227 D-W = 1.175 AB(1)-2.20 (.02) AB(1)-2.38 (.01) B-W = 1.350 B-W = 1.264 AB(2) -.065 (.94) AB(2) -.491 (.62) B-W = 1.553 B-W = 1.491 AB(2) .566 (.57) AB(2) .851 (.39) Sa gan es 27.128 31.83 61.767 64.890 s a 0.98 0.74 -0.48 0.16 Obs (g oups) 102 (17) 102 (17) 85 (17) 85 (17) 119 (17) 119 (17) 102 (17) 102 (17) *,**,*** deno e signi icance le els a he 10%, 5% and 1% espec i ely Ab(o de ) deno es A ellano and Bond (1991) es o au oco ela ion in he e o e m D-W: modi ied Du bin-Wa son es o au oco ela ed e o s; B-W: Bal agi Wu LBI 41 TABLE 5: The impac o S uc u al Ac ions on Regional Public In es men . In e ac ion Te m [1] [2] [3] [4] [5] [6] [7] [8] F-E F-E F-E F-E GMM-AB GMM-AB GMM-AB GMM-AB PubIn ( -1) 0.5881*** 0.5807*** 0.5366*** 0.5400*** 0.05 0.05 0.05 0.05 eus 0.6482*** 0.6895*** 0.6477*** 0.6757*** 0.7860*** 0.7898*** 0.5452** 0.5262** 0.19 0.18 0.19 0.18 0.22 0.20 0.22 0.21 dec 0.0189** 0.0173*** 0.0164*** 0.0154*** 0.0222*** 0.0208*** 0.0169*** 0.0167*** 0.004 0.00 0.00 0.00 0.00 0.00 0.00 0.00 dec*eus -0.5612* -0.6267* -0.5269 -0.5732* -0.7154* -0.7325** -0.5390 -0.4977 0.338 0.33 0.33 0.33 0.37 0.34 0.36 0.35 P i In 0.0462*** 0.0475*** 0.0444*** 0.0456*** 0.0492*** 0.0508*** 0.0594*** 0.02 0.02 0.01 0.02 0.02 0.02 0.02 PubCons -0.0198 -0.0134 -0.0169 0.00073 0.0608*** 0.03 0.03 0.03 0.03 0.02 CGIn es -0.0177 -0.0203 0.0432 0.0427 0.05 0.05 0.06 0.06 GDPg -0.0129* -0.0119* -0.0263*** -0.0247*** 0.01 0.01 0.01 0.01 POPg -0.1606* -0.1629** -0.1253 -0.1273 0.08 0.08 0.09 0.09 F es g oup 5.93 (.000) 5.76 (.000) 7.80 (.000) 7.54 (.000) R2 wi hin 0.3014 0.297 0.2743 0.2699 AR Tes D-W = .654 D-W = .618 D-W = .652 D-W = .612 AB(1) -3.13 (.00) AB(1)-3.10 (.00) AB(1)-3.05 (.00) AB(1)-3.02 (.00) B-W = .896 B-W = .860 B-W = .902 B-W = .866 AB(2) .858 (.39) AB(2) .891 (.37) AB(2) .526 (.59) AB(2) .519 (.60) Sa gan es 173.888 174.296 168.892 169.070 s a 0.63 0.65 0.71 0.67 Obs (g oups) 238 (17) 238 (17) 238 (17) 238 (17) 221 (17) 221 (17) 221 (17) 221 (17) *,**,*** deno e signi icance le els a he 10%, 5% and 1% espec i ely Ab(o de ) deno es A ellano and Bond (1991) es o au oco ela ion in he e o e m D-W: modi ied Du bin-Wa son es o au oco ela ed e o s; B-W: Bal agi Wu LBI