County-Level Determinants of Local Public Services in Appalachia : A Multivariate Spatial Autoregressive Model Approach

We develop a multivariate spatial autoregressive model of local public expenditure determination based on the maximization of a strictly quasi-concave community utility function. The existence of spatial interdependence is tested for both the spatial error and spatial lag model. The full model is estimated by efficient GMM following Kelejian and Prucha (J Real Estate Finan Econ 17(1):99–121, 1998). The results indicate significant spillover effects among local governments with respect to spending on public services. The OLS estimates of the conventional (non-spatial) model and the corresponding maximum likelihood estimates of the spatial lag and the spatial error models are presented for comparison purposes. The GMM estimates are found to be more efficient