Chapter 10 – Does yardstick competition influence local government fiscal behaviour in the Philippines?*

Joseph J. Capuno, Stella A. Quimbo, Aleli D. Kraft, Carlos Antonio R. Tan, Jr. and Vigile Marie B. Fabella
University of the Philippines
Diliman, Quezon City, Philippines


Abstract

Like in other countries, decentralization in the Philippines is believed to have entrenched elite control of local governments and made them unresponsive to their constituents. In this paper, we investigate whether a local government’s expenditures or revenues from local sources are influenced by the fiscal behaviour of its neighbouring localities conditional on the incumbent mayor’s term limit status. Using a panel dataset of cities and municipalities in the Philippines for 2001, 2004, 2007 and 2010, we find effects of yardstick competition on local government’s spending on social and economic services, especially when the incumbent mayor does not yet face term limit. However, the effect is nil on local revenue mobilization and negative on total fiscal spending (net of general public services), regardless of the mayor’s term limit status. Our results support a policy promoting greater access to information on local social and economic services to induce comparison and thereby promote overall performance.

Key words: Local government spending, yardstick competition, Philippines

JEL Codes: H72, I18, H4


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