Lars-Erik Borge

Demographic shift, relative costs and the allocation of local public consumption in Norway

Local government responses to shifting demand and supply conditions are investigated. The desired allocation of local public consumption is determined in a voter group decision model where different age groups compete for services within an exogenous budget constraint. The model is implemented in an AIDS demand system built into a partial adjustment framework. The estimates indicate that the dramatic shift in the age composition of the population from the young to the elderly during the period studied has led to higher educational spending per pupil and less health care services per elderly. Age groups in decline are able to resist reallocations and gain in terms of spending per head.

Economic and political determinants of fee income in Norwegian local governments

This paper presents an empirical analysis of the determinants of fee income in Norweigan local governments. The point of departure is a representative voter model emphasizing the effects of pure economic variables. The benchmark model is extended by including two aspects of the political system: ideology and strength. It is evident that increased socialist influence increases the size of the local public sector, while a strong political leadership has an advantage in opposing pressure to increase spending.

The Relationships Between Costs and User Charges: The Case of a Norwegian Utility Service

The paper investigates the relationships between costs and user charges in the sewage industry in Norwegian local governments. The purpose of the analysis is to answer the following questions: (i) To what extent is a higher unit cost passed on to consumers in terms of a higher user charge? (ii) Does user charge financing lead to higher or lower unit cost? The econometric analysis indicates that around 40 per cent of a cost increase is passed on to consumers in terms of higher user charge. Moreover, user charge financing has a significant negative effect on the unit cost. An increase in the degree of user charge financing by 10 per cent-points is predicted to reduce the unit cost by 5-8 per cent.

Efficiency potential and efficiency variation in Norwegian lower secondary schools

The paper performs an efficiency analysis of the lower secondary school sector in Norway. The efficiency potential is calculated to 14 percent based on a DEA analysis with grades in core subjects (adjusted for student characteristics and family background) as outputs. The analysis of the determinants of efficiency indicates that a high level of municipal revenue, a high degree of party fragmentation, and a high share of socialists in the local council are associated with low educational efficiency. The negative effects of the share of socialists and party fragmentation seem to reflect both higher resource use and lower student performance.

Charging for public services: the case of utilities in Norwegian local governments

Abstract This paper empirically analyzes the determinants of utility charges using a panel data set for a sample of Norwegian local governments. There is strong evidence of revenue substitution in the sense that local governments increase their utility charges when other sources of revenue (lump-sum grants and regulated tax revenue) become more restricted. Moreover, local political institutions are shown to be important: a high share of socialist representatives in the local council leads to high utility charges, whereas a strong political leadership is able to keep utility charges low.

Local government service production: The politics of allocative sluggishness*

A partial adjustment model with endogenous speed of adjustment is developed to analyze how pressure from interest groups and mass media influence the adjustment process of local governments. A survey questionnaire to the local politicians is used to measure the pressure indicators. Based on a combined cross-section and time-series data base for Norwegian local governments, the sluggishness of the adjustment process is estimated. The dynamics of the adjustment process is shown to reflect the activity of interest groups and media pressure. Pressure groups related to primary education explain an important part of the sluggishness observed. Pressure groups promoting kindergartens and health care/care for the elderly stimulate reallocations.

Spending Growth with Vertical Fiscal Imbalance: Decentralized Government Spending in Norway, 1880-1990

Vertical fiscal imbalance, decentralized responsibility of spending with centralized financing, creates a common pool problem with spending pressure towards central funds. A model of decentralized government spending under vertical fiscal imbalance is developed, and the importance of national political characteristics for internalization of costs and spending level is investigated in an econometric analysis of Norway during 1880-1990. We argue that in a parliamentary democracy, the internalization of costs is influenced by the party fragmentation of parliament. This is confirmed by the econometric analysis using a Herfindahl index as a measure of fragmentation and political strength.

Dynamic responses to changing demand: a model of the reallocation process in small and large municipalities in Norway

Local government priorities between local services are analysed in a community preference model emphasizing income effects and demographic factors. The model is built into a partia adjustment framework with endogenous speed of adjustment to study the dynamic responses of local governments to shifting demand. The empirical analysis of the reallocation process separates between small and large municipalities in terms of population size. Serious sluggishness of the adjustment is documented, with large municipalities experiencing stronger inertia than the small. The small authorities have been able to respond more effectively to the restructuring pressure from demographic shift.

Property taxation as incentive for cost control: Empirical evidence for utility services in Norway

Recent theoretical research suggests that property taxation has incentive effects that can help control cost problems in the public sector. The institutional setting in Norway allows this first empirical investigation of the incentive effect of property taxation, since we can separate between local governments with and without property tax. The raw data of the variation in the unit cost level for utilities show that local governments with property tax have about 20% lower unit cost. Using both linear regression and propensity score matching, we are not able to wash out the difference in unit costs. Our interpretation is that having a visible and controversial local tax related to property stimulates voter interest in local government activities and thereby may help cost control. The incentive effect is of interest for the design of fiscal federalism.

Local government grants and income tax revenue: Redistributive politics in Norway 1900–1990

An important aspect of the welfare state is public provision of private goods, primarily education and health care. In Norway the provision of these services has been organized through the local public sector. The development of the welfare state has to a large extent been the development of welfare communes. The important revenue sources of the local and county governments, grants and income tax revenue, have been controlled nationally, and the paper addresses the determinants of these revenues during 1900–1990. The approach combines a demand model of local public services emphasizing price and income-elasticities with a political economy model of central government ideology and strength. The decision making is understood as bargaining between the government and interest groups, and the political structure consequently is of importance for the policy outcome. The analysis shows how politics matter, and the results indicate that a minority coalition government implies 30% more grant and income tax revenue to local and county governments than one party majority in the long run.