Public Goods, Congestion and Population Size: A Non-Parametric Analysis Using French Data

Abstract

We specify a flexible general framework of the effect of municipality size on the provision of an excludable public good. The model accounts for demand side factors which affect the quality of the public good. Previous literature has recognized that municipality size should have a non-linear effect on the quality of public good provision and to this end different papers have applied a range of alternative parametric specifications. Using a very large sample of French "communes" we are able to estimate the effect of municipality size semi-parametrically. We compare our results to the parametric studies and demonstrate that none of the typically-estimated parametric models fit the data particularly well. Furthermore, in contrast with the parametric specifications, we find evidence of the U-shaped relationship between per-capita public expenditures and population which is predicted by theory.

Keywords: Local Public Economics, Semi-parametric econometrics, Congestion

JEL Classification: C14, H4, H7, R51