Date of Award

8-22-2008

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

First Advisor

Dr. Sally Wallace - Chair

Second Advisor

Dr. Carolyn Bourdeaux

Third Advisor

Dr. Jorge L. Martinez-Vazquez

Fourth Advisor

Dr. Roy W. Bahl

Fifth Advisor

Dr. Shiferaw Gurmu

Abstract

We address the questions on what determines local government proliferation, specifically on the impact of intergovernmental transfers on proliferation. On exploring the determinants of proliferation, we provide a more elaborate empirical technique than exists in the literature by employing panel binary outcome, survival regression, as well as count analysis to capture the time varying effect from intergovernmental transfers. We also examine the impact of proliferation on service delivery outcomes and construct channels by which the policy may affect the outcomes in the education and health sectors. We apply panel difference-in-difference estimation and we uniquely identify the different treatment group and thus control for the plausible differential impact on outcomes in regards to changes in intergovernmental transfers. On the determinants of local government formation, there are likely competing effects across transfers on the decision to proliferate as well as on the extent of fragmentation given that we find (1) the lump-sum conditional grants positively influence the probability of proliferation, (2) a province with higher median share of equalization grants associates with higher number of local governments, (3) higher equalization grants implies a longer duration to the proliferation event, and (4) higher tax sharing in the proliferated local governments reflects higher stability where stability refers to the longer duration to the sequential proliferation event. The findings suggest the tactical central-local behavior may be present, however, the support of rent-seeking hypothesis on proliferation should not be generalized to overall system of transfers. On the impact from the proliferation policy, the education and health outcomes estimations provide mixed results within the treatment group. The findings shed light on the current practice of administrative or political decentralization, specifically on the competing local-central preferences within each sector on measured service delivery outcomes. The results from difference-in-difference (DID) estimations show support on attainment of education outcome in new local governments represented by a reduction in the dropout rate but not on the quality of education in terms of higher students’ tests scores even though there is a relatively higher conditional grants allocated to the proliferated local governments. Meanwhile, in terms of infant mortality rate, we only find evidence of improvement in infant mortality on the originating local government but not on the new local governments. Controlling for selectivity and production function covariates have not changed the pattern of the impact.

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Economics Commons

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