nep-eur New Economics Papers
on Microeconomic European Issues
Issue of 2019‒03‒25
23 papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. The Hypothetical Household Tool (HHoT) in EUROMOD: a new instrument for comparative research on tax-benefit policies in Europe By Hufkens, Tine; Goedemé, Tim; Gasior, Katrin; Leventi, Chrysa; Manios, Kostas; Rastrigina, Olga; Recchia, Pasquale; Sutherland, Holly; Van Mechelen, Natascha; Verbist, Gerlinde
  2. Formal Care of the Elderly and Health Outcomes Among Adult Daughters By Abrahamsen, Signe A.; Grøtting, Maja Weemes
  3. Financial Literacy and Preparation for Retirement By Nolan, Anne; Doorley, Karina
  4. Labour Supply Responses to Financial Wealth Shocks: Evidence from in Italy By Renata Bottazzi; Serena Trucchi; Matthew Wakefield
  5. Baseline results from the EU28 EUROMOD: 2015-2018 By Tammik, Miko
  6. Transitioning from Solo Self-Employed to Microbusiness Employer: Local Economic Environment or Owner Characteristics? By Henley, Andrew
  7. Wages and employment: The role of occupational skills By Esther Mirjam Girsberger; Matthias Krapf; Miriam Rinawi
  8. Inefficient Short-Time Work By Pierre Cahuc; Sandra Nevoux
  9. Earthquakes, grants and public expenditure: how municipalities respond to natural disasters By Giuliano Masiero; Michael Santarossa
  10. Marriage Market Equilibrium, Qualifications, and Ability By Anderberg, Dan; Bagger, Jesper; Bhaskar, Venkataraman; Wilson, Tanya
  11. High school dropout for marginal students. Evidence from randomized exam form By Martin Eckhoff Andresen; Sturla A. Løkken
  12. The Determinants of Retirement Planning within Couples in Ireland By Doorley, Karina; Nolan, Anne
  13. Using HHoT to generate institutional minimum income protection indicators By Marchal, Sarah; Siöland, Linus; Goedemé, Tim
  14. Progressive tax reforms in flat tax countries By Barrios, Salvador; Ivaškaitė-Tamošiūnė, Viginta; Maftei, Anamaria; Narazani, Edlira; Varga, Janos
  15. The Roots of Health Inequality and the Value of Intra-Family Expertise By Chen, Yiqun; Persson, Petra; Polyakova, Maria
  16. Asymmetric additionalities between R&D outsourcing locations By María García-Vega; Elena Huergo
  17. Do Party Positions Affect the Public\'s Policy Preferences? By Grewenig, Elisabeth; Lergetporer, Philipp; Werner, Katharina; Woessmann, Ludger
  18. Digital platform innovation in European SMEs. An analysis of SME Instrument Business Proposals and Case Studies. By Chiara Eleonora De Marco; Alberto Di Minin; Cristina Marullo; Daniel Nepelski
  19. Wage Incidence of a Large Corporate Tax Credit: Contrasting Employee - and Firm - Level Evidence By Clément Carbonnier; Clément Malgouyres; Loriane Py; Camille Urvoy
  20. Lost Boys: Access to Secondary Education and Crime By Huttunen, Kristiina; Pekkarinen, Tuomas; Uusitalo, Roope; Virtanen, Hanna
  21. Linking neighbors’ fertility. Third births in Norwegian neighborhoods By Janna Bergsvik
  22. Effects of extended paternity leave on union stability and fertility By Rannveig K. Hart; Synøve N. Andersen; Nina Drange
  23. Searching for the optimal territorial structure: The case of Spanish provincial councils By Isabel Narbón-Perpiñá; Diego Prior; Mª Teresa Balaguer-Coll; Emili Tortosa-Ausina

  1. By: Hufkens, Tine; Goedemé, Tim; Gasior, Katrin; Leventi, Chrysa; Manios, Kostas; Rastrigina, Olga; Recchia, Pasquale; Sutherland, Holly; Van Mechelen, Natascha; Verbist, Gerlinde
    Abstract: This paper introduces the Hypothetical Household Tool (HHoT), a new extension of EUROMOD, the tax-benefit microsimulation model for the European Union. With HHoT, users can easily create their own hypothetical data, which enables them to better understand how policies work for households with specific characteristics. The tool creates unique possibilities for an enhanced analysis of taxes and social benefits in Europe by integrating results from microsimulations and hypothetical household simulations in a single modelling framework. Furthermore, the flexibility of HHoT facilitates an advanced use of hypothetical household simulations to create new comparative policy indicators in the context of multi-country and longitudinal analyses. In this paper, we highlight the main features of HHoT, its strengths and limitations, and illustrate how it can be used for comparative policy purposes.
    Date: 2019–03–12
  2. By: Abrahamsen, Signe A. (University of Bergen, Department of Economics); Grøtting, Maja Weemes (Norwegian Social Research, Oslo Metropolitan University)
    Abstract: Health-care expenditures and the demand for caregiving are increasing concerns for policy makers. Although informal care to a certain extent may substitute for costly formal care, providing informal care may come at a cost to caregivers in terms of their own health. However, evidence of causal effects of care responsibilities on health is limited, especially for long-term outcomes. In this paper, we estimate long-term effects of a formal care expansion for the elderly on the health of their middle-aged daughters. We exploit a reform in the federal funding of formal care for Norwegian municipalities that caused a greater expansion of home care provision in municipalities that initially had lower coverage rates. We find that expanding formal care reduced sickness absence in the short run, primarily due to reduced absences related to musculoskeletal and psychological disorders. In general, we find no effects on long-term health outcomes.
    Keywords: Formal and informal eldercare; sickness absence; health
    JEL: I10 J14 J22 J38
    Date: 2019–01–25
  3. By: Nolan, Anne (ESRI, Dublin); Doorley, Karina (Economic and Social Research Institute, Dublin)
    Abstract: The economic and financial landscape facing individuals as they move through their life-cycle is becoming increasing complex. Internationally, declines in the coverage and generosity of public programmes mean that individuals now need to assume responsibility for a greater share of their future retirement saving and health and long-term care costs. Financial literacy, defined as knowledge of fundamental financial concepts and the ability to do simple financial calculations, is a key skill required to ensure adequate financial protection in older age. In this paper, we investigate the extent to which financial literacy is an important determinant of financial protection in the older pre-retirement population in Ireland. Using data from the Irish Longitudinal Study on Ageing (TILDA), we find significantly higher levels of financial literacy among men, those with higher levels of education and cognition, and the self-employed. Financial literacy is in turn associated with higher total household wealth, lower financial stress and higher expected retirement income. We find little evidence that those with higher levels of financial literacy are more likely to have various forms of supplementary pension cover however, which may reflect a limited role for financial literacy over and above other important determinants such as income and education.
    Keywords: financial literacy, retirement, Ireland
    JEL: J32 E21
    Date: 2019–02
  4. By: Renata Bottazzi (University of Bologna and Institute for Fiscal Studies, London); Serena Trucchi (Department of Economics, University Of Venice Cà Foscari); Matthew Wakefield (University of Bologna and Institute for Fiscal Studies, London)
    Abstract: We look at how strongly shocks to wealth affect labour supply, using Italian data. We use asset price shocks to provide a measure of wealth changes that is exogenous to the household’s saving and labour supply. Results point to significant effects of wealth on: hours of work; whether agents leave their jobs; and, labour earnings. The magnitude of these effects can be substantial, for example for individuals who suffered larger wealth losses during the financial crisis. Responses are similar for men and women on average, but older working‐age individuals have relatively strong responses that drive the population results. Short‐run effects are somewhat persistent
    Keywords: Labour Supply, Financial wealth shocks, Wealth effects
    JEL: J22
    Date: 2019
  5. By: Tammik, Miko
    Abstract: This paper presents baseline results from the latest version of EUROMOD (version I1.0+), the tax-benefit microsimulation model for the EU. First, we briefly report the process of updating EUROMOD. We then present indicators for income inequality and risk of poverty using EUROMOD and discuss the main reasons for differences between these and EU-SILC based indicators. We further compare EUROMOD distributional indicators across all EU 28 countries and over time between 2015 and 2018. Finally, we provide estimates of marginal effective tax rates (METR) for all 28 EU countries in order to explore the effect of tax and benefit systems on work incentives at the intensive margin. Throughout the paper, we highlight both the potential of EUROMOD as a tool for policy analysis and the caveats that should be borne in mind when using it and interpreting results. This paper updates the work reported in Tammik (2018).
    Date: 2019–03–13
  6. By: Henley, Andrew (Cardiff University)
    Abstract: Only a minority of micro-businesses create jobs for others. This paper addresses whether personal characteristics and resources of the microbusiness owner or the local external economic environment are drivers of job creation. In the UK context of significant growth in self-employment but a declining proportion who create jobs, an investigation using longitudinal data is provided. Individual demographic and resource characteristics are found to be more important, but place effects are relatively weak. Entrepreneurship policy needs to target particular groups, including women and less experienced business owners in their localities.
    Keywords: self-employment, micro-business, job creation, local environment, longitudinal analysis
    JEL: J23 L26 M13 R12
    Date: 2019–02
  7. By: Esther Mirjam Girsberger (Economics Discipline Group, University of Technology Sydney); Matthias Krapf (University of Basel, Switzerland); Miriam Rinawi (Swiss National Bank, Switzerland)
    Abstract: We study how skills acquired in vocational education and training (VET) affect wages and employment dynamics in Switzerland. We present and estimate a search and matching model for workers with a VET degree who differ in their interpersonal, cognitive and manual skills. Assuming a match productivity which exhibits worker-job complementarity, we estimate how workers’ skills map into job offers, wages and unemployment. Firms value cognitive skills on average almost twice as much as interpersonal and manual skills. Moreover, they prize complementarity in cognitive and interpersonal skills. We estimate average returns to VET skills in hourly wages of 9%. Furthermore, VET improves labour market opportunities through higher job arrival rate and lower job destruction. Workers thus have large benefits from getting a VET degree.
    Keywords: Occupational training; labour market search; multidimensional skills.
    JEL: E23 J23 J24 J64
    Date: 2019–01–29
  8. By: Pierre Cahuc (Département d'économie); Sandra Nevoux (Banque de France)
    Abstract: This paper shows that the reforms which expanded short-time work in France after the great 2008-2009 recession were largely to the benefit of large firms which are recurrent short-time work users. We argue that this expansion of short-time work is an inefficient way to provide insurance to workers, as it entails cross-subsidies which reduce aggregate production. An efficient policy should provide unemployment insurance benefits funded by experience rated employers’ contributions instead of short-time work benefits. We find that short-time work entails significant production losses compared to an unemployment insurance scheme with experience rating.
    Keywords: Short-time work; Unemployment insurance; Experience rating
    JEL: J63 J65
    Date: 2019–03
  9. By: Giuliano Masiero (Department of Management, Information and Production Engineering, University of Bergamo, Italy; Institute of Economics (IdEP), Università della Svizzera italiana, Switzerland); Michael Santarossa (Department of Economics and Management, University of Pavia, Italy)
    Abstract: We analyze the response of municipalities to the occurrence of natural disasters (earthquakes) in Italy, in terms of spending behavior, use of upper tier transfers and recovery. We find evidence of increasing expenditure for about 12 years after the shock, with asymmetric responses between matching (earthquake-related) and unconditional grants, and heterogeneous flypaper effects across the country. While in Northern municipalities expenditure tends to regress to pre-treatment levels, i.e., before the earthquake occurrence, Southern municipalities react to the drop of grants showing inertia in expenditure levels. This evidence is coupled with a faster recovery of private income and housing prices in Northern municipalities. Our analysis exploits balance sheet data of about 8000 municipalities for the period 2000-2015 and encompasses the universe of earthquake events defined using alternative intensity measures. We apply a matching approach to disentangle earthquake-related grants (mostly matching grants) from other grants, and to define a control group of non-treated municipalities. The spatial and temporal variation in expenditure and transfers between treated and not-treated governments are then examined using panel data models on the universe of municipalities as well as on a matching sample of municipalities.
    Keywords: Natural disasters, Local expenditure, Intergovernmental transfers, Matching grants, Flypaper effect, Economic growth
    JEL: H52 H72 R50
    Date: 2019–02
  10. By: Anderberg, Dan; Bagger, Jesper; Bhaskar, Venkataraman; Wilson, Tanya
    Abstract: We study marital sorting on academic qualifications and latent ability in an equilibrium marriage market model using the 1972 UK Raising of the School-Leaving Age (RoSLA) legislation as a natural experiment that induced a sudden, large shift in the distribution of academic qualifications in affected cohorts, but plausibly had no impact on the distribution of ability. We show that a Choo- Siow (2006) style model with sorting on cohort, qualifications, and latent ability is identified and estimable using the RoSLA-induced population shifts. We find that the RoSLA isolated low ability individuals in the marriage market, and affected marital outcomes of individuals whose qualification attainment were unaffected. We also decompose the difference in marriage probabilities between unqualified individuals and those with basic qualifications into causal effects stemming from ability and qualification differences. Differences in marriage probabilities are almost entirely driven by ability.
    Keywords: Assortative mating; Latent ability; Marriage; Qualifications
    JEL: D10 D13 J12
    Date: 2019–03
  11. By: Martin Eckhoff Andresen; Sturla A. Løkken (Statistics Norway)
    Abstract: We exploit the assignment of exam form in a high-stakes Norwegian high school exam to estimate the impact of exam form on exam results, later school performance, graduation and longer run outcomes. Results indicate that written exams significantly reduce exam grades and reduce the probability of passing relative to the alternative oral exam, particularly for initially low-performing students. Because passing the exam is mandatory to obtain a high school diploma, this translates into reduced high school graduation rates that remain significant over time, permanently shifting a group of marginal students to drop out of high school entirely. IV estimates on labor market earnings are close to zero, but these results are too imprecise to draw firm conclusions.
    Keywords: Exam form; high school dropout; returns to education
    JEL: I21 J24
    Date: 2019–02
  12. By: Doorley, Karina (Economic and Social Research Institute, Dublin); Nolan, Anne (ESRI, Dublin)
    Abstract: Financial literacy is higher for men than for women and high financial literacy has been linked to higher wealth and better retirement planning. However, relatively little is known about the decision making process for retirement savings within couples and about how the gap or interaction between the financial literacy of members of a couple influences their preparation for retirement. This paper investigates the relationship between the financial literacy of members of pre-retirement couples and their level of wealth and financial stress using TILDA data for Ireland. We find that joint financial literacy is more highly correlated with household wealth, particularly real estate, than the financial literacy of individual members of the couple but that, where individual level financial literacy is associated with wealth, it is the financial literacy of the man in the couple which plays the most important role.
    Keywords: retirement, financial literacy, wealth, couples
    JEL: J32 E21 D14
    Date: 2019–02
  13. By: Marchal, Sarah; Siöland, Linus; Goedemé, Tim
    Abstract: This paper aims to show how the newly developed Hypothetical Household Tool of the EUROMOD microsimulation model can be used to generate institutional minimum income protection indicators. It does so by updating the CSB’s Minimum Income Protection Indicators (CSB-MIPI) dataset using EUROMOD and HHoT. We discuss the necessary assumptions for this exercise, and describe, present and validate the obtained indicators. In doing so, we provide and discuss both an updated minimum income protection indicator dataset, and give guidance to researchers who want to use the flexibility of HHoT to calculate purpose designed minimum income protection indicators.Â
    Date: 2019–03–11
  14. By: Barrios, Salvador; Ivaškaitė-Tamošiūnė, Viginta; Maftei, Anamaria; Narazani, Edlira; Varga, Janos
    Abstract: Much of the literature on flat tax reforms has highlighted the benefits of introducing flat personal income tax systems in transition economies. The advocated benefits of flat tax systems range from their simplicity, higher compliance and lower distortionary effects on growth and employment. These arguments have often been cited to support policy recommendations favouring the adoption of flat tax systems in Central and Eastern European (CEE) countries in the 1990s and the 2000s. However since income inequality is notoriously high in these countries, the question of introducing some progressivity in the tax system has come to the fore in both policy and academic circles. In this paper, we analyse the fiscal, redistributive and macroeconomic impact of (re-)introducing progressivity in a number of CEE countries with flat tax systems. Combining microsimulation and macro models, we find that a significant reduction in income inequality can be achieved by moving from a flat to a progressive tax system with positive, albeit negligible, macroeconomic and employment impact. The magnitude of these effects depends on country-specificities and tax system characteristics, due in particular to the existence of tax allowances and tax creditsÂ
    Date: 2019–03–07
  15. By: Chen, Yiqun; Persson, Petra; Polyakova, Maria
    Abstract: Mounting evidence documents a stark correlation between income and health, yet the causal mechanisms behind this gradient are poorly understood. This paper examines the impact of access to expertise on health, and whether unequal access to expertise contributes to the health-income gradient. Our empirical setting, Sweden, allows us to shut down inequality in formal access to health care; we first document that strong socioeconomic gradients nonetheless persist. Second, we study the effect of access to health-related expertise -- captured by the presence of a health professional in the extended family -- on health. Exploiting "admissions lotteries" into medical schools and variation in the timing of degrees, we show that access to intra-family medical expertise has far-reaching health consequences, at all ages: It raises longevity, improves drug adherence and reduces the occurrence of lifestyle-related disease in adulthood, raises vaccination rates in adolescence, and reduces tobacco exposure in utero. Third, we show that the effects of expertise are larger at the lower end of the income distribution -- precisely where access to expertise is scarcer. Unequal access to health-related expertise can account for as much as 18% of the health-SES gradient, and may thus play a significant role in sustaining health inequality.
    Date: 2019–03
  16. By: María García-Vega; Elena Huergo
    Abstract: This paper empirically examines the additionalities or crowding-out effects of international and national outsourcing of R&D to generate innovation. Using a panel database of about 10,000 Spanish firms for the period 2005-2014, we show that there is asymmetry in the effectiveness of the combined adoption of R&D outsourcing locations. International R&D outsourcing re-inforces the effect of domestic R&D outsourcing. However, national outsourcing does not re-inforce international R&D outsourcing. We next explore sources of additionality. Property Right Theory (PRT) suggests that additionality is high when holdup problems are low. We therefore analyze two important situations where holdup problems are likely to be low: with public foreign providers and in sectors with low technological complexity. Consistent with PRT, our results suggest that additionality is stronger when R&D is acquired from public providers rather than from private providers. Moreover, we find additionality in sectors with medium or low R&D complexity. In sectors with high R&D complexity, domestic and international outsourcing are largely independent. These results also suggest that international R&D outsourcing does not undermine domestic R&D.
    Keywords: Imports of technology; International and national R&D outsourcing; Innovation; Additionality or crowding-out effects. JEL classification: L25; O31; O32
    Date: 2019
  17. By: Grewenig, Elisabeth (ifo Institute); Lergetporer, Philipp (ifo Institute); Werner, Katharina (ifo Institute); Woessmann, Ludger (ifo Institute and LMU Munich)
    Abstract: The standard assumption of exogenous policy preferences implies that parties set their positions according to their voters\' preferences. We investigate the reverse effect: Are the electorates\' policy preferences responsive to party positions? In a representative German survey, we inform randomized treatment groups about the positions of political parties on two family policies, child care subsidy and universal student aid. In both experiments, results show that the treatment aligns the preferences of specific partisan groups with their preferred party\'s position on the policy under consideration, implying endogeneity of policy preferences. The information treatment also affects non-partisan swing voters.
    Keywords: political parties; partisanship; survey experiment; information; endogenous preferences; voters; family policy;
    JEL: D72 D83 H52 J13 I28 P16
    Date: 2019–03–20
  18. By: Chiara Eleonora De Marco (Haas School of Business, Garwood Centre for Corporate Innovation, UC Berkeley, CA-US; Institute of Management, Scuola Superiore Sant’Anna, Pisa); Alberto Di Minin (Institute of Management, Scuola Superiore Sant’Anna, Pisa); Cristina Marullo (Institute of Management, Scuola Superiore Sant’Anna, Pisa); Daniel Nepelski (European Commission - JRC)
    Abstract: The study explores how European SMEs applying to the SME Instrument (SMEi) funding scheme under Horizon 2020 innovate use the digital platform business model. The study demonstrates a widespread awareness of the digital platform concept as a tool to be applied to gain momentum and growth, taking advantage of the digital affordances. The main challenges to scale-up include how to manage external communities and orchestrate them in order to build innovation ecosystems; how to find a profitable business model; and secure funding for growth. Firms located in peripheral regions face additional difficulties in finding complementary resources.
    Keywords: digital platform, innovation, SME, H2020, SME Instrument, Europe
    Date: 2019–03
  19. By: Clément Carbonnier (Université de Cergy Pontoise); Clément Malgouyres (Banque de France); Loriane Py (Banque de France); Camille Urvoy (Département d'économie)
    Abstract: The present paper sheds new light on the incidence of firm taxation by exploiting the design of a large-scale corporate income tax credit in France. The tax credit is proportional to the wage bill of workers paid below a hourly wage threshold, which induces a discontinuity in mandatory levies at the employee level. We use discontinuities at the employee level in order to estimate firm-level incidence. This turns out to be the relevant level for the effects of the policy, which would be undetectable with an estimation focused on the employee level impact of the shock. Relying on exhaustive matched employer-employee data, we find a discrepancy between the absence of incidence at the employee level and a substantial incidence on wages at the firm level, around 50%. We find more over that the policy in question has stark (anti)-redistributive effects. The tax cut is targeting the lowest part of wage earners, but the benefits accrue to other employees inside the firm, who earn substantially higher wages on average.
    Keywords: tax credit; incidence; rent sharing
    Date: 2019–03
  20. By: Huttunen, Kristiina; Pekkarinen, Tuomas; Uusitalo, Roope; Virtanen, Hanna
    Abstract: Abstract We study the effect of post-compulsory education on crime by exploiting a regression discontinuity design generated by admission cut-offs to upper secondary schools in Finland. We combine data on school applications with data on criminal convictions and follow individuals for 10 years. Our results show that successful applicants are less likely to commit crimes during the first five years after admission. Crime is reduced both during and outside the school year, indicating that the channel through which schooling affects crime cannot be explained by incapacitation alone. We find no effect on crime committed after 6 years from admission.
    Keywords: Crime, Education, School admission, Incapacitation, Human capital
    JEL: K42 I2
    Date: 2019–03–13
  21. By: Janna Bergsvik (Statistics Norway)
    Abstract: The aim of this paper is to gain more insight on the drivers behind geographical variations in family sizes by pointing out the role of neighborhoods and neighbors for two-child couples’ transitions to third births. Couples’ decisions about fertility behavior are influenced by their social context where immediate neighborhoods and neighbors may play a significant role. Furthermore, as neighborhoods are important contexts of childrearing, couples may sort geographically based on their fertility preferences. Using detailed geo-data from Norwegian administrative registers to locate couples in flexible ego-centered neighborhoods, this paper introduces a new dimension of spatial fertility variations. Results from regression models show that the family size of neighbors is positively related to each other. That is, the likelihood that two-child couples have a third child increases with the share of families with three or more children in the neighborhood. This relationship remains significant also after controlling for a range of couple characteristics, housing, neighboring women’s educational level and time-constant characteristics of neighborhoods. It is also consistent for various neighborhood definitions which in this study range from the 12 to the 500 nearest neighbors. However, the strength of the association between neighbors’ fertility increases with the number of neighbors, providing evidence that residential sorting is a dominant driver.
    Keywords: spatial fertility; k-nearest neighbors; fertility diffusion; family size; third births
    JEL: J11 J12 J13 R20 R23
    Date: 2019–03
  22. By: Rannveig K. Hart; Synøve N. Andersen; Nina Drange (Statistics Norway)
    Abstract: Long paternity leaves have the potential for lasting effects on parental unions, potentially reducing specialization and increasing union stability and fertility. We put these hypotheses to a causal test, using an extension of the Norwegian parental leave father's quota from 6 to 10 weeks as a source of exogenous variation in fathers' leave uptake. We implement a Regression Discontinuity design, using full population data from Norwegian administrative registers of parents of children in a four-month window around the reform (N = 9 757). The reform significantly increased the amount of leave taken by fathers by about three weeks and reduced the amount of leave taken by mothers. Neither union stability, fertility nor his or her subsequent earnings were affected by the reform.
    Keywords: Union dissolution; father involvement; quasi experiment
    JEL: J12 J13 J16 J18
    Date: 2019–03
  23. By: Isabel Narbón-Perpiñá (Department of Business, Universitat Autònoma de Barcelona, Spain); Diego Prior (Department of Business, Universitat Autònoma de Barcelona, Spain); Mª Teresa Balaguer-Coll (Department of Accounting and Finance, Universitat Jaume I, Castellón, Spain); Emili Tortosa-Ausina (IVIE and Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: Modern states are organized in multi-level governance structures with economic and political authorities dispersed across them. However, although there is relatively widespread consensus that this form of organization is preferable to a centralized authority, the same cannot be said about its jurisdictional design, that is, how to transfer authority from central states to both supranational and subnational levels. This lack of consensus also exists in contexts with explicit initiatives to strengthen political ties such as the European Union (EU), and even within EU member countries, a situation that is aggravated by the relative scarcity of contributions that measure the advantages and disadvantages of different territorial organizations. We explore these issues through a study of one EU country, Spain, whose provincial councils (diputaciones) are often the subject of debate and controversy due to their contribution to increasing public spending and their purported inefficiencies, corruption, and lack of transparency. Specifically, we combine a variety of activity analysis techniques to evaluate how they impact on local government performance. Results suggest that, in general, the presence of a provincial council has a positive impact on local government performance, but when their activity levels are too high the effect can become pernicious.
    Keywords: local government, multilevel analysis, panel data, performance, provincial council
    JEL: C14 H11 H70 R15
    Date: 2019

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