Measuring fiscal interactions in local federalism: Evidence from Florida

Local governments react to one another in expenditure. However, the existing literature concerning these reactions suffer from one of three problems: timing dynamics, county behaviour, or over aggregation. City-to-city interaction estimates are shown to shrink up to 50% when appropriately dealing with dynamics and county behaviour using a dynamic spatial Durbin model with a maximum likelihood estimator. Expenditure disaggregation shows that the majority of categories have no spillover. One category, general government expenditure, is responsible for nearly all of the variation. This finding does not fit well with the existing theories for spatial interaction.