The composition of local government expenditure and income growth: the case of Sweden

This paper analyses the relationship between the composition of local government expenditure and income growth rate at the local level. Based on a panel of municipality-level data for Sweden spanning the period 1996-2015, we find indications of a negative relative 'growth effect' of education spending compared with both perceived non-productive expenditure shares and childcare and infrastructure spending, both viewed as productive. However, the robustness of these results is challenged when considering spatial interactions, and the choice of panel construction to address reverse causality. To some extent the results are confined to the assumption that local fiscal policy is exogenous.