Determinants of subcentral governments bailouts:

Evidence for the Spanish regions

Pilar Sorribas Navarro
Universitat de Barcelona & Institut dEconomia de Barcelona


ABSTRACT: This paper analyses the main determinants of the central government decision on
bailing-out regional governments i.e. the determinants of the additional grants that the central
government assigns to regions due to an increase in their issue of debt. The estimated grant
equation is derived from a model of a federation where regions are Stakelberg leaders and the
central government objective is to maximize its probability of being re-elected by increasing
grants as regions borrow. i.e. bailing them out (Goodspeed, 2002). The dynamic specified
equation is estimated with a panel of data on grants for 15 Spanish regions during the period
1986-2001 and using the GMM estimator (Arellano and Bond, 1991). The results show that the
Spanish central government partially bails-out regions. The assignment to regions of the
responsibility for providing health, the political alignment with the incumbent at the center, the
electoral support the incumbent at the center has in each region and the swing voters are the
regional characteristics that explain the central government decision on bailing them out.

Key words: intergovernmental grants, bailouts, political economy
JEL code: H1, H77, O4

Contact address:
Facultat de Cincies Econmiques
Universitat de Barcelona
Dept. Economia Poltica i Hisenda Pblica
Avda. Diagonal 690, torre4, planta 2ona
08034 Barcelona
Telf.: 93 402 18 12
e-mail: psorribas@ub.edu


1
1. Introduction
The traditional theory on Fiscal Federalism holds that fiscal decentralization negatively
affects on macroeconomic stability (Oates, 1972; Musgrave and Musgrave, 1980). One of the
main determinants of this stability is fiscal discipline of subcentral governments. It is said that a
subcentral government has a soft budget constraint when it does not cover its expenditures out of
its revenues and it issues debt because it expects to receive additional resources from the central
government (Kornai et al. 2003). This expectation can lead subcentral governments to behave
strategically in selecting their borrowing level, usually above the efficient level. The additional
resources that a central government provides to a region due to its issue of debt are known in the
literature as a bailout (Wildasin, 1997; Goodspeed, 2002). Fiscal bailouts can take various forms,
being the most common the assignment of additional intergovernmental grants.
Some recent papers, mainly based on case analysis, show that fiscal decentralization does
not necessarily imply soft subcentral budget constraints. Some examples of this claim are the
USA (Inman, 2003), Canada (Bird and Tassonyi, 2003) and Hungary (Wetzel and Papp, 2003).
The effect of decentralization on subnational fiscal discipline depends on the economic and
political institutional environment (Rodden et al., 2003). Concretely, it depends on whether this
environment generates expectations of being bailed-out. Although the central government may
state its intentions to abstain from bailing out, the real issue is the credibility of this claim. The
natural way to model this phenomenon is as a sequential game (Carlsen, 1998; Goodspeed, 2002;
Inman, 2003). The central government makes a no bailout claim. The subcentral governments
assess the credibility of this claim and make their budgetary decisions. If they do not find the
central claim to be credible, they issue debt. At the final stage, the central government must
decide whether or not to bailout subcentral governments. The decision depends on the payoffs of
each action. The benefits of denying bailouts accrue in the future when the central governments


2
no-bailout claim becomes credible and subnational governments behave responsibly (Inman,
2003). The costs of not bailing out are immediate, since the welfare of subcentral governments
fall below their desired level and, this may have electoral consequences for the incumbent at the
center. Thus, there may be both economical and political motives for bailout. This temporal gap
between costs and benefits jointly with the short period of time that politicians consider when
taking decisions reduce the credibility of the no bailout claim.
The move toward decentralization in many countries has generated recently interest in the
relationship between fiscal decentralization and subcentral fiscal discipline. In the European
Union the concern about this topic has been materialised in the Maastricht Treaty (1991) and the
Stability and Growth Pact (1995). Those agreements state that member states must avoid
excessive deficits and borrowing. In practice, the establishment of jerarquical controls that
limit the borrowing autonomy of subcentral governments is one of the most common mechanism
used to guarantee subcentral fiscal discipline. There is a vast literature that has demonstrated that
although those limits are effective (e.g. Poterba, 1994; Alt and Lowry, 1994), they can also have
negative effects on efficiency (e.g. Alesina and Bayoumi, 1996; Eichengreen and Bayoumi,
1994).
The literature on the effect of decentralization on subnational fiscal discipline is, so far,
mainly based on descriptive case analysis. There are few papers that have analytically analysed
some aspects of this topic (e.g. Wildasin, 1997; Carlsen, 1998; Goodspeed, 2002; Bordignon and
Turati, 2005; Petterson-Libdon and Dahlberg, 2005). In this paper, a basic framework to analyse
the existence, determinants and consequences of subcentral governments bailouts is established
based on Goodspeed (2002). This model provides an equation that picks up the main
determinants of the distribution of grants among subcentral government, including as one of them
the issue of debt by sucentral governments. This equation is estimated with a panel data on


3
intergovernmental grants for 15 Spanish regions
1
(called in Spanish Comunidades Autnomas)
for the period 1986-2001. This empirical analysis will provide evidence on whether the central
Spanish government bailouts regions and on the economic and political determinants of this
decision. So far, the only empirical evidence that exist is the paper of Esteller and Sol (2004),
which shows that the budgetary adjustment of the Spanish regions is mainly implemented by
increases in intergovernmental grants and reductions in investment. The issue of debt of Spanish
regions has substantially increased since 1992. The worried about this problem has materialised
in the establishment of limits on the issue of regional debt. Moreover, the regional financing
system has been continuously reformed in order to increase the fiscal corresponsibility of
regional governments.
The paper is organized as follows. In the second section we introduce a simple model of
grant allocation among regions. In the third section we set the arguments that can induce the
Spanish central government to bailout regions; the data base and econometric procedures are also
discussed in this section. The results are presented in the fourth section. Finally, the last section
summarises the main conclusion of this analysis.

2. Analytical framework
The basic framework to analyse the existence, determinants and consequences of regional
governments bailouts is based in the two-period inter-temporal model developed by Goodspeed
(2002). Imagine a federation with one central government and two regional governments,
indexed by i=1, 2. The population of region i is n
i
. There is perfect information. Each individual
in region i consumes C
it
units of a private good and G
it
per capita units of a public good provided

1
We do not consider all the Spanish regions. We exclude two of them of the analysis (Pas Vasco and Navarra,
called Comunidades Autnomas forales) due to the fact that their financing system is different.


4
by the regional government. The utility of the representative resident of region i depends upon its
consumption of public and private good in both periods and, it is assumed to be concave and
increasing and additively separable in each of its arguments. The representative consumer of
region i is endowed with Y
it
units of income in each period. The provision of the public good is
financed by a regional lump-sum tax, T
it
, and a grant provided by the central government, g
it
. In
the first period, regions can issue debt, denoted by D
i1
, to finance the public good provision, but
at the end of the second period, the regional public debt must be null. In the second period the
central government per capita grants, g
i2
, must be completely financed by a central government
lump sum tax on consumers,
2
C
T . Thus, the budget constraints are:

1 1 1 1
G
i i i i
G g T D + +
1 1 1 i i i
C Y T ( )
2 2 2 1
1
G
i i i i
G g T D r + + [1]
2 2 2 2
C
i i i
C Y T T
2 12 22
2
C
T g g +
The objective function of regional governments is the welfare of the representative
consumer, W
i
(G
i1
, G
i2
, C
i1
, C
i2
) = ( ) ( ) ( ) ( )
1 2 1 2 i i i i i i i i
u G v G w C z C + + + , while the objective
function of the central government is the probability of being re-elected,
1 1 2 2
n p n p + , where p
i

denotes the probability of being re-elected in region i. Following Dasgupta et al. (2004), we
assume that voters vote in the basis of two criteria: ideology and the amount of welfare received
by the parties; and we express the probability of the incumbent at the centre of being re-elected:
( ) ( ) ( ) ( ) 1, 2 1 2
, 2 1 , ,
i i i iC i i i i i i i
p T Sw W G G C C + [2]
where
iC
is the fraction of partisan voters of the incumbent at the center at region i, i.e. those
voters who consistently support the incumbent party; Sw
i
is the fraction of swing voters, whose


5
voting decision is affected by grants; and,
i
(0,1) is the fraction of welfare generated by
grants that voters assign to the centre
2

The timing for the game is as follows. Before the game starts, central government decides
the distribution of grants between regions, g
11
and g
21
. Regional governments are Stackelberg
leaders and, in the first period, simultaneously determine their taxes, T
i1
, and borrowing, D
i1
.
Each regional government takes the other regional government choice as given. In the second
period, central and regional governments move simultaneously. The former chooses regions
second period grant level, g12 and g22, to maximize
1 1 2 2
n p n p + subject to the budget constraints
[1], taken as given T
i1
and D
i1
. Regional governments decide their taxes, T
i2
, and as there is
perfect information, they take into account the reaction function of the central government,
*
2 i
g ,
when deciding their debt level in the first period. Hence, regional government i chooses T
i1
, T
i2

and D
i1
to maximize W
i
(G
i1
, G
i2
, C
i1
, C
i2
) subject to the budget constraints [1] and the reaction
function of the central government,
*
2 i
g . To solve the game by backward induction, the central
governments problem is solved first.
Central government: The first order conditions of the central governments problem are:
( ) ( ) ( )
1 1 2 2
1 1 2 2
2 1 12 2 22
1 1
2 1 2 1 2 1
2 2
i i
i i
i i
v z z
n n n
v G z C z C



+

i=1,2 [3]
Equations [3] mean that the optimal distribution of grants should equates, for the two
regions, the weighted marginal utility of increased grants to a region to the marginal cost of
increased taxes that must be paid by all regions. The weights depend on the variation in the

2
Grants from the central government to the regions increase their resources and, thus, grants generate welfare
amongst citizens. Nonetheless, it should be consider that voters cannot perfectly perceive the source of the grants.
Hence, the incumbent party at the centre and the one at the regional government share the welfare generated by these
grants. Complementarily, 1-
i
is the fraction of welfare provided by grants that voters assign to the incumbent party
at the regional government.


6
probability of being re-elected that this increase in grants generates,
i i
v and
i i
z , on the
size of the region, ni, and, on the fraction of welfare that the voters assign to the central
government,
i
. Assuming an interior solution, the first order conditions simplify to:
( ) ( )
1 1 2 2
1 1 2 2
1 12 2 22
2 1 2 1
v v
n n
v G v G





[4]
Equation [4] states that the centers grants should equate the weighted marginal utility of
regions voters. This equation can be used to define g
i2
as an implicit function of D
i1
, i.e., the
centrals government reaction functions:
( )
*
2 2 11 21
,
i i
g f D D i=1, 2 [5]
Functions [5] yield the following responses, which tell us how the regions borrowing
decision in the first period affects the allocation of grants in the second period:
( )( )

1
1
]
1

,
_

1
1 1 2
2
2
2
2
2
2
2
1
*
2
i
i
i
i
i
i
i
i
i i
i
i
v G
v
G
v
v
r n
D
g
i=1, 2 [6]
where ( ) ( )
1
1
]
1

,
_

+
1
1
]
1

,
_

j
j
j
j
j
j
j
j
j j
i
i
i
i
i
i
i
i
i i
v G
v
G
v
v
n
v G
v
G
v
v
n

2
2
2
2
2
2
2
2
2
2
2
2
2
2
1 2 1 2
The central government bailouts a regional government if
*
2 1 i i
g D >0, i.e. if the central
government assigns additional grants to a region due to its issue of debt. In this case, the regional
government has a soft budget constraint. This derivative shows that the decision of bailing out a
region depends on how additional grants affect the welfare of all regions voters and, on their
effect on the probability of the central government of being re-elected in all regions. The sign of


7
this derivative depends on
i

3
. It is always positive when the fraction of welfare generated by
grants that voters assign to the centre is similar in both regions (i.e. either
i
&
j
1/2 or
i
&
j
<1/2). When this perception is significantly different among regions (either
i
>1/2 &
j
<1/2
or
i
<1/2 &
j
>1/2), this derivative is only positive when the marginal impact generated by
additional grants provided to one region (i) is greater in that region (i) than in the other region
(j)
4
. The higher the relative marginal impact that those additional grants generate
5
, the higher the
magnitude of the bailout.
Regional governments: The first order conditions of the regional governments are:
( ) ( )
*
* *
2 1 2 2
2 1 1 1
1 1
1 1 1
2 2
j i i i i
i i i i i
g
u G g g
r r
v G D D D
_ _
+ + + +




,
,
i, j=1,2 [7]
Equations [7] show the price of debt faced by regional governments. It is composed by
two terms. The first term represents the reduction in the debt cost due to the bailout of regional
debt by the central government. The second term results from the common property problem in a
federation and, represents the additional central taxes that have to be paid resulting from an
increase of grants to any region.
In order to have a Pareto efficient equilibrium, since efficiency condition [5] is already
satisfied, it only remains to show that the Samuelson condition is also satisfied. Adding equation
[8] for the two regions, it can be shown that the Samuelson condition only holds if

3
Since
i
and vi are concave and increasing in their argume nts (i.e.
2 2
i i
v <0,
2 i i
v G >0,
2 2
2 i i
v G <0,
and
i i
v >0).
4
i.e.
1
1
]
1

,
_

i
i
i
i
i
i
i
i
v G
v
G
v
v

2
2
2
2
2
2
2
>
1
1
]
1

,
_

j
j
j
j
i
i
j
j
v G
v
G
v
v

2
2
2
2
2
2
2

5
It depends on the degree of concavity of
i
and v
i
, and on the value of G
i2
.


8

21
*
12
21
*
22
11
*
22
11
*
12
2
1
2
1
1
2
1
2
1
1
D
g
D
g
D
g
D
g

,
_

,
_

[8]
Equation [8] implies that, given a variation in the first period public debt, the reaction of
the central government, in terms of the second period grants, must be the same, independently on
which region modifies its issue of debt. That condition only holds if both regions are identical in
terms of
i
and W
i
. This assumption is quite restrictive and, thus, will rarely hold in the reality.
Therefore, it can be asserted that the presence of bailouts generates inefficiency. As expression
[8] shows, a bailout has two opposite effects on the regional price of debt. On the one hand, a
bailout reduces the opportunity cost of borrowing since less G
i2
must be given up to pay the debt
(first term equation [7]). On the other hand, a bailout increases the cost of borrowing, since more
taxes to the central government have to be paid (second term equation [7]). When the regions
decrease in cost of borrowing is higher (lower) than its increase in cost due to additional taxes,
the region tend to indebt above (bellow) the efficient level

3. Empirical implementation
3.1. Sample, variables and data source
The predictions of the model about the existence and determinants of bailouts are tested
estimating the relationship between grants and regional debt using data for 15 Spanish regions for
the period 1986-2001. Before doing the empirical analysis, in this section, we determine the
arguments that in the Spanish case can affect the reaction function of the central government and
the variables that are used to test them. Table 1 summarizes the definition of these variables and
their data source.

i) Determinants of bailouts


9
Types of intergovernmental grants
Whether central government can use grants to bailout regional governments depends on
their type (Rodden, 2001). If the distribution of grants is determined by explicit formula, i.e.
grants are non-discretionary, the central government would have little discretion in providing
additional grants due to regional debt. By contrast, if the criterion for determining the distribution
of grants is poorly defined, the central government can use them to bailout regional governments.
Nonetheless, rules can have the opposite effect and help to enforce bailouts. Equalization grants,
for example, depending on how they are defined, can obligate the central government to bailout
regional governments in financial difficulties, if that means that the inhabitants in one region may
suffer a reduction in the provision of public goods and services (Seitz, 1999).
During the period analysed, intergovernmental grants are the main source of revenues of
Spanish regions. They provide, on average, the 70% of the total regional resources. Among them,
some are completely discretionary (18%), which are mostly capital grants, but the greatest share
of grants is non-discretionary (82%). The PIE (Participacion en los Ingresos del Estado, share in
state revenues
6
) is the main grant (44%) and it is, a priori, non-discretionary. The second
quantitatively more important grant is the one devoted to finance regional provision of health
care (30%, Health). It is also, a priori, non-discretionary. To test whether the type of grants
conditions their probability of being used to bailout regional government, the total transfers that
the central government assigns to regional governments, Tr
it
, are decomposed, depending on
whether they are or not formula based, in non-discretionary transfers, TrND
it
, and discretionary
transfers
7
, TrD
it
.

6
Since 2002 this grant is called Sufficiency Fund (Fondo de Suficiencia).
7
Non-discretionary transfers include PIE, Health, Guarantee Fund, Fund of Inter-territorial Compensation and
expenditure responsibilities assigned to regional governments that are not included in PIE. Discretionary Transfers


10
Degree of borrowing autonomy
Many countries impose borrowing restrictions on regional governments (e.g. balanced
budget constraints or restrictions on the ability to issue debt) in order to avoid fiscal regional
difficulties and, thus, bailouts. The success of these restrictions depends on the regional
government ability to circumvent them (Milesi-Ferretti, 2000) and on their credibility (Mikesell,
2002). If they are not effective, these limits can have the opposite effect. If their compliment is
important for the central government, their establishment can incentive the central government to
bailout regions that overpass them. In 1992, the Spanish central government passed a law (called
Escenarios de Consolidacin Presupuestaria) that limited the central and regional borrowing
ability, in order to fulfil the conditions of the Maastricht Treaty. To test the effect of these limits
on the reaction function of the central government, I define the temporal dummy NECP
t
, that is
equal to one during the period 1986-1991, and is equal to zero otherwise; and the temporal
dummy ECP
t
, that is equal to one during the period 1992-2001, and is equal to zero otherwise.

Assignment of expenditure responsibilities
The decision on bailing out a region depends on how additional grants affect the utility of
its representative consumer, since it affects the probability of the central government of being re-
elected in this region. This effect is determined by the characteristics of the public goods and
services that are responsibility of the regional governments. If a regional government is
responsible for providing key public goods or services, such as health or education, it is really
difficult for the central government to deny a bailout in the event that the regional government
cannot provide these services. It is also the case when the central government establishes a

include transfer to enterprises and families, investment projects (convenios y contratos), other conditional transfers,
extraordinary compensations and auto-government grants (rganos de autogobierno)


11
minimum provision level or standard to public services that are responsibility of the regional
governments (Rodden et al., 2003). The provision of public goods and services often generates
positive externalities to other regions. If a regional government cannot provide the optimal level
of these services, the central government will tend to bail it out, due to the fact that a reduction in
the provision of these services affects not only the utility of the representative consumer of this
region, but also the representative consumers of other regions (Wildasin, 1997). The incentive of
the central government to bailout a region increases with the size of these positive externalities.
This hypothesis is known in the literature as too big to fail.
In the Spanish case, one of the most important differences among regions, until 2002, is
that not all of them were responsible for providing health and education. These expenditure
responsibilities have been assigned to the regions in different moments of time. These are
considered key services by the central government, which fixes the minimum standard that
should be provided. Moreover, these services generate positives externalities, as many other
public goods and services that are responsibility of the regional governments do. To empirically
test the effect of those characteristics, the differences in the expenditure responsibilities assigned
to regions are proxied by an index, IComit, which quantifies the increase in regional expenditures
needs due to the assignment of the provision of health and/or education
8
. Following Wildasin
(1997), the externalities generated by the public goods and services provided by regional
governments are proxied by the size of the regions in terms of population, %Pop
it
.


8
This index is calculated as
GC
GE DE GH DH
ICom
it it
it
+
, where DHit and DEit are dummy variables that are
equal to one if the region i has been assigned the provision of health or education, respectively, in period t; GH, GE
is the average per capita expenditure, at 2001 constant prices, during the period 1986-2001 on health and on
education, respectively (GH=564,67; GE=428,05); and GC is the average per capita expenditure, at 2001 constant
prices, during 1986-2001 on the provision of the public goods and services that are assigned to all the regions
(GC=714,48). Hence IComp
it
is equal to 0 if the region has not been assigned health neither education; is equal to


12
Political benefits
The decision on bailing out a region is also determined by political motives. It mainly
depends on how these additional grants affect the probability of the central government of being
re-elected, which is determined by: the fraction of welfare generated by grants that voters of this
region assigns to the central government,
i
, the fraction of partisan voters that the incumbent at
the center has in this region,
iC
, and the fraction of swing voters, Sw
i
. In order to receive the
entire political benefits that these additional grants generate, the central government has a higher
incentive to bailout a region when the incumbent party is the same at both levels of governments,
i.e. they are politically aligned (Dasgupta et al., 2004). Some papers suggest that parties will
allocate more resources and, thus, bailout, regions where they already have a higher safer support
group, since they find too risky to invest in swing voters groups (Cox and McCubbins, 1986).
Other papers suggest that parties will allocate more resources in regions where the marginal gains
to be obtained are higher, i.e. where their electoral productivity is higher (e.g. Lindbeck and
Weibull, 1988; Dixit and Londregan, 1997).
During the period analysed, 1986-2001, five central and five regional
9
elections took
place. In both elections, the Hondt formula is used to translate votes to representatives, and the
electoral districts are the provinces
10
. Some recent political economy papers may help in selecting
the variables that pick up these political characteristics. In order to test the alignment effect, we
define a variable, c
it
, that is equal to one when the incumbent at the center and at the region are
on the same ideological wing; and, cit is equal to zero otherwise. To test the effect of partisan
support, we define vit as the center incumbents vote share in the last central elections (Castells

0,8 (0,6) if it is responsible for providing health (education); and, is equal to 1,4 if it is responsible for providing
health and education.
9
Regional elections do not take place simultaneously at all the regions.


13
and Sol, 2005). The swing voters are proxied as the ratio between the number of votes that
would make the incumbent lose one parliamentary seat in district i and the number of votes
cast
11
. This variable accounts for the closeness of the latest electoral contest, which is common
used in the literature as a proxy of swing voters (e.g. Case, 2001; Johansson, 2003). The more
votes are needed to loose a representative, the lower the probability that a vote changes the
results.

ii) Debt data
The public debt of regional government, Dit, is the one defined on the Protocol excessive
deficit of the European Union. It includes long and short run debt of the regional public
administrations, but it does not consider all the public firms and organisms. As we have already
said, the financing system of the Spanish regions is renegotiated every five years. During the
period analysed, there were three different financing systems. To test whether the central
government decision on bailing out a region is different when the financing system is negotiated,
I define Dini
it
as the public debt that region i has when the financing system of year t was
negotiated
12
. Moreover, to test whether the central government only reacts to Diniit, I decompose
the debt variable at period t as the sum of the debt stock that exist when the financing system is
negotiated, Dini
it
, and its variation until period t, Dac
it
= D
it

- Dini
it
13
. It could be the case that the
reaction function of the central government,
*
2 i
g , is nonlinear on debt, i.e. it can be different
depending on whether the public debt of the regional government is above or bellow a

10
Provinces compose the Autonomous Communities (i.e. regions). There are only 5 regions formed by only one
province. Thus, only in those five cases the AC is equivalent to the electoral district.
11
See Esteller (2003) for a definition ofthe procedure used to calculate them.
12
Thus, for t=1987-1991 Dini
it
= D
i1986
; for t=1992-1996 Dini
it
= D
i1991
; for t=1997-2001 Dini
it
= D
i1996
.
13
D
it
= Dini
it
+ Dac
it
= Dini
it
, + (D
it
- Dini
it
). For instance, for t=1988, D
i1988
= Dini
i1986
+ Dac
i1988
= Dini
it1986
+
(D
i1988
- Dini
i1986
).


14
determined level. To empirically test this hypothesis, I define a debt threshold,
i
D , for each
region as its average issue of debt during the period 1986-1991
14
.

iii) Control variables
Apart from the issue of debt, several structural aspects of the regions determine the
distribution of grants. These structural aspects are mainly related to the expenditure needs and the
fiscal capacity of the regions. The expenditures needs are proxied by the population of the region
(Sol, 1999), Popit, and by IComit in order to consider the differences in the expenditure
responsibility assigned to regions. During the period analysed, Spanish regions mainly had taxes
levied on wealth. There were no significant differences on the tax autonomy among them. Thus,
their fiscal capacity is proxied by their gross domestic product, GDP
it
(Esteller et al., 2005).
All the monetary variables are expressed at constant 2001 prices and in per capita terms in
order to standardize by the size of the region.

3.2. Econometric specification
From the reaction function of the central government, considering the most basic setting
where the central government is benevolent, and all the regions are identical (in terms of
population size and utility of the representative consumer), the following basic equation to
estimate the existence of bailouts can be expressed:
1 1 it it it it i t it
Tr Tr D X F F u

+ + + + + [10]

14
The regional issue of debt increased substantially from 1992 on. If the debt threshold,
i
D , is defined as the
average of the whole period, we would just compare the reaction function during the peri ods 1986-1991 and 1992-
2001, i.e. the reaction function before and after the limits on the issue of debt were established by the central
government (ECP). Defining
i
D as the average issue of debt during 1986-1991, I allow the no linearity to exist over
the whole period.


15
where
it
X is a vector of control variables picking up the main structural aspects of region i that
affect the long run desired level of grants (Xit = Popit, IComit, GDPit); Fi and Ft are fixed and time
effects, respectively, which pick up structural and temporal characteristics that affect the
distribution of grants that are not included in the control variables; and, u
it
is the error term, with
zero mean and constant variance. A lag of the grants is introduced as an explanatory variable
because the greatest share of intergovernmental grants that the Spanish regions receive is
calculated only once every five years. The estimated value of (i.e.
1

it it
D Tr ) determines the
existence of bailouts. Notice that is the reaction of the central government in the short run,
while ( ) 1 is the reaction in the long run.
In order to test whether the reaction function of the central government is nonlinear on
debt, following Esteller and Sol (2004) I re-express equation [10] as follows:

( )
1 1 1 2 1
0,
it it it it i it i t it
Tr Tr D Max D D X F F u

+ + + + + + + [11]
where
i
D is the debt threshold for region i. If
2
>0 we can assert that the reaction function of
the central government is nonlinear on debt.
Assuming that regions are different, but that still the central government is benevolent,
from its reaction function the following equation can be specified to identify the economic
determinants of bailouts:

1 1 1 2 1 3 1 4 1
%
it it it t it t it it it it
Tr Tr D NECP D ECP D ICom D Pop

+ + + + +

it i t it
X F F u + + + + [12]
It can be asserted that the limits established on the issue of regional debt have affected the
reaction function of the central government if
1
and
2
are statistically significantly different.
Moreover, if
2
>0, it can be claimed that these limits have induced the central government to
bailout regional governments. To verify the hypothesis that the assignment of the responsibility


16
for providing health and/or education motivates a bailout,
3
must be positive. On the other
hand, it can be affirmed that the reaction function of the central govern is determined by the
externalities that the public goods and services regional provided generate if
4
>0.
Relaxing the previous assumption and considering that the central government allocates
grants in order to maximize its probability of being re-elected, equation [12] can be re-specified
as follows in order to identify not only the economic determinants of bailouts, but also the
political ones:

1 1 1 2 1 3 1 4 1
%
it it it t it t it it it it
Tr Tr D NECP D ECP D ICom D Pop

+ + + + +
( ) ( )
1 1 2 1 3 1 4 1 5 1
1 1
it it it it it it it it it it it it it it
D c D c v D c m D c v D c m

+ + + + + +
( ) ( )
1 2 3 4 5
1 1
it it it it it it it it it it i t it
X c c v c m c v c m F F u + + + + + + + + + [13]
The ideological political congruence between the central government and a region
positively affects the decision on bailing it out if
1
>0. We can claim that the incumbent at the
central government is risk-averse when deciding which region it bailouts if
2
>0 and
4
>0.
Bailouts are assigned in order to maximise the electoral productivity of these additional grants if
3
<0 and
5
<0. The effect of partisan (swing) voters on the decision on bailing out a region is
different depending on the ideological political congruence if
2
and
4
(
3
and
5
) are
statistically significantly different.
Due to the characteristics of the sample, in order to avoid losing many degrees of
freedom, the influence of each of the potential explanatory factors is analysed separately.
Nonetheless, the results obtained are corroborated considering them jointly. All these equations
include the lagged value of the endogenous variable as an explanatory variable and, thus, their
estimation by OLS would be biased since the number of temporal observations in the panel is
small (Nickell, 1981). In order to obtain unbiased estimators, we estimate these equations by the


17
General Method of Moments (GMM). Two assumptions are crucial to guarantee the consistency
of GMM estimators: variables cannot be correlated with the error term and, there must be no
serial correlation in the error term. To fulfil the first assumption, we express the variables in first
differences
15
and use as instruments lagged values of variables in levels (Arellano and Bond,
1991). The Sargan test of overidentifying to check for the validity of the set of instruments is
included
16
. To check the hypothesis of no serial correlation in u
it
, two tests of serial correlation
are provided. If the error term in the levels equation was uncorrelated, then the first difference of
the error term will show negative first order autocorrelation. Thus, it is expected to find first
order serial correlation in the residuals but not second order serial correlation
17
.

4. Results
Table 2, 3 and 4 present the results obtained in the estimation of the central governments
reaction function. The bottom of the tables shows the results of a battery of specification
statistics. In all the cases, all the variables are jointly significant (Wald (jt)) and the time effects
(Wald (ET)) are also significant. The serial correlation tests show that there is first order serial
correlation (AR(1)) in the first differenced residuals but not second order correlation (AR (2)).
The Sargan tests confirm the validity of the instruments used.
We begin with the discussion of the basic characteristics of the central government
reaction function (equation [10]). The first column of Table 2 shows that the distribution of
grants of the central government positively depends on the issue of debt of regional governments.

15
Among the possible transformations, I have chosen the first differences one because it guarantees that GMM
estimators are consistency although the instruments are not strictly exogenous (Lahiri, 1993).
16
The Sargan test is distributed, under the null of instrument validity, as a
2
n
where n is the number of
overidentifying restrictions.


18
Thus, a first conclusion of this analysis is that the Spanish central government bails-out regional
governments. Concretely, if a region increases its debt in 100, the central government will
assign to this region an additional grant of 8.99 the following period (

=0.0899), and of
15.99 in the long run (
( )

1 =0.0899/(1-0.4379)). Hence, the Spanish central government
partially bails-out regional governments. Another result is that the distribution of grants in period
t positively depends on its distribution in period t-1 (i.e.

=0.4379 and highly statistically

significant). This result corroborates the convenience of incorporating dynamics in the analysis
and it is due to the fact that the greatest share of grants (PIE and Health), which are non-
discretionary, are not calculated every year on a formula basis. Among the control variables, only
the differences on the expenditure responsibilities assigned to regions positively determine the
distribution of grants (
2
>0). It is an expected result, as the provision of education and health by
the regions is financed by grants. The no significance of the other control variables can be
explained because their impact on the distribution of grants is already picked up by the lagged
value of the endogenous variable. For the rest of equations estimated, the meaning and
significance of the control variables hold and, thus, they will not be commented.
Columns [2] and [3] show the results of estimating the basic reaction function (equation
[10]) but considering as the endogenous variable non-discretionary grants and discretionary
grants, respectively. These results show that not only discretionary grants
18
react to the issue of
debt by regional governments, but also non-discretionary grants. Thus, although theoretically it
has been argued that non-discretionary grants can rarely bailout regional governments, there is

17
Although in presence of heteroscedasticity it is more efficient to use the two -steps GMM procedure, given the
characteristic of our sample (small n and t) its standard errors can be a poor guide for hypothesis testing (Arellano
and Bond, 1991). Thus, we use the one-step GMM estimator.
18
The distribution of discretionary grants in period t does not depend on its distribution in period t-1 (i.e. not
stat istically significant).


19
evidence that the Spanish central government non-discretionary grants do. Concretely, when a
regional government increases its issue of debt by 100 , the following period the central
government assigns to this region an additional non-discretionary grant of 6.83 (and 12.54 in
the long run).
As the fourth column of Table 2 shows, the estimated reaction of the central government
is higher when we consider the issue of regional debt that exists when the financing system is
negotiated, Dini
it
, than when we consider the current issue of regional debt (0.0931 vs 0.0899).
This does not necessarily mean that the central government only reacts to Dini
it
. The results of
column [5] show that the central government does not only react to the regional debt that exists
when the financing system is negotiated, but also to its variation during time, although the
reaction to the former is higher that to the latter. This evidence also holds for discretionary and
non-discretionary grants
19
. Column [6] of Table 2 shows that the decision of the central
government of bailing out a regional government is not linear on debt (equation [11]). There is
empirical evidence that the amount of additional grants that the central government provides to a
region due to an increase in its issue of debt is different, concretely bigger, when its stock of debt
is above a determined threshold than when it is bellow it.
Once it has been determined that the Spanish central government partially bailouts
regional governments, we move to the analysis of the economic arguments that affect this
decision, which main results are reported in Table 3. Regarding the results obtained, we must
highlight the following conclusions. First, the establishment of limits on the borrowing autonomy
of regional governments affects the central government decision on bailing-out regional
governments. Before these limits were established, central government did not bailout regional

19
All the results that are commented in the text, but are not reported on tables, are available upon request to the
author.


20
governments (
1

it it it
D NECP Tr = -0.1888 but not statistically significant). Contrary, since they
were passed, the central government has bailed-out regional governments
(
1

it it it
D ECP Tr =0.1124 and statistically significant), and the magnitude estimated of this
bailout is higher than in the basic equation (0.1124 vs 0.0899). Thus, those limits incentive the
central government to bailout regional governments. This fact can be explained by the design of
those limits, which did no include any penalty in case of non-compliance. Moreover, their
compliment was important for the central government, in order to fulfil the conditions of the
Maastricht Treaty. Those two facts mine their credibility. Nonetheless, these results should be
interpreted with caution, since the sample data before those limits were passed only contains six
observations, and due to the dynamics there are only four observations left for this first period.
Second, the differences in the expenditures responsibilities assigned to regional
governments affect the central government decision on bailing-out regional governments.
Concretely, to be responsible for providing health and/or education induces the central
government to bailout regional governments (
it it
D Tr =-0.1557+0.1971IComit). This result can
be explained by the fact that the central government consider them key services and it regulates
their minimum provision level.
Third, the externality that the provision of regional public goods and services generates
also affects positively the central government decision on bailing-out regional governments
(
it it
D Tr =-0.0841+1.3074%Popit). Nonetheless, it is convenient to interpret this result with
caution, since nearly all big regions, in terms of population, are the one that are responsible for
providing health and/or education. In fact, when controlling for the differences on expenditures
responsibilities, externality is not an explanatory argument of the bailout decision (column [4],
Table 2).


21
Thus, so far, the results conclude that only the assignment of health and/or education
provision to regional governments affects the central government decision on bailing-out regions.
These results are corroborated estimating equation [12] considering jointly all the feasible
economic arguments that can affect the reaction function of the central government (column [5],
Table 2). In order to test whether the assignment of the provision of these two public services has
the same effect, we decompose ICom
it
into two indexes: IComH
it
and IComE
it
, which quantify the
increase in the regional expenditures needs due to the assignment of the provision of health and
education, respectively
20
(column [6], Table 2). The results evidence that the assignment of the
provision of health does positively affect the probability of being bailed-out, but that the
assignment of education does not affect this probability. The results of the first column of Table 4
show that if a region that is responsible for providing health increases its issue of debt in 100 ,
the following period the central government will assign to this region an additional grant of 27.23
(37.74 in the long run).
Controlling for the economic arguments, now we proceed to the analysis of the political
arguments that affect the decision of the central government on bailing-out regions, which main
results are reported in Table 4. The first conclusion obtained is that the central Spanish
government partially bailouts regional government that are responsible for providing health,
independently on whether they are or not on its same ideological wing. Second, the central
government assigns more additional grants to the regions where a higher share of votes have to
be lost in order to loose a representative parliament in that region. This result is contrary to the
maximzing electoral productivity hypothesis. Nonetheless, this result does not hold when we

20
These indexes are calculated as
GC
GH DH
IComH
it
it
,
GC
GE DE
IComE
it
it
. See footnote 4 for the
definition of the variables.


22
control simultaneously for all the feasible political arguments. Third, the electoral support that the
central government has in a region positively affects on its decision on bailing it out. These
results claim that the central government is risk-averse. These results change when we allow the
effect of partisan and swing voters to be different depending on their political congruence with
the central government (column [6], Table 4). There is evidence that, on the one hand, for those
regions that are on its ideological wing, the higher the electoral support that the central
government has, the higher the additional grants. On the other hand, for those regions which do
not share the political ideology with the central government, the higher the closeness in the
previous elections, the higher the bailout.

5. Conclusions
This paper has analysed the main determinants of the central government decision on
bailing-out regions i.e. the determinants of the additional grants that the central government
assigns to regions due to an increase in their issue of debt. The grant equation is derived from a
simple two-period inter-temporal theoretical model where regions are Stakelberg leaders and the
central government objective function is to maximize its probability of being re-elected. The
model also shows that the presence of bailouts usually generates inefficiency, in the sense that
regional governments tend to indebt above the efficient level. The grant equation has been
estimated using data for 15 Spanish regions during the period 1986-2001. The results evidence
that if a region increases its issue of debt in 100, the following period the central government
will assign to this region an additional grant of 8.99 (15.99 in the long run). Thus, it can be
asserted that the Spanish central government partially bails regions out. This conclusion holds for
the discretionary and for the non-discretionary grants. Central government does not only react to
the regional debt that exists when the financing system is negotiated, but also to its variation


23
during time, although the reaction to the former is higher that to the latter (9.33 vs. 8.99). The
reaction function of the central government is non-linear on debt. There is evidence of
economical and political motives for bailout. Central government bails-out regions that are
responsible for providing health. Electoral support positively affects the decision on bailing out a
region, but only for those that are politically aligned with the incumbent at the center. For those
regions that are not politically aligned with the incumbent at the center, the assignment of
additional grants is positively conditioned by its electoral productivity (i.e. swing voters).
These results show that the different reforms implemented on the Spanish regional
financing system during the period analysed have not been enough to mitigate central
government bailouts. Thus, some reforms on the regional financing system are still needed. There
is evidence that the health financing system should be reformed. The distribution criteria of the
equalisation grant should be re-defined in order not to obligate central government to bailout
regions that increase their issue of debt. Another feasible reform would be to increase the fiscal
autonomy of regions providing them a reliable and effective regional system of taxation that
allows them to adjust their revenues depending on their expenditures need.



24
Table 1:
Variables: definition, descriptive statistics and data source
Variable Definition Average Max Min St.Dv. Source
Tr
it
Grants received by region i in
period t (at constant 2001 , in
per capita)
561.38 1695.57 33.07 442.80 BADESPE
TrD
it
Discretionary grants received by
region i in period t (2001 , pc)
102.82 398.02 17.28 76.02 BADESPE
TrND
it
Non-discretionary grants
received by region i in period t
(2001 , pc)
458.56 1463.90 -33.13 413.30 BADESPE
NECP
t
1 if t = 1986-1991
0 if t = 1992-2001
0.37 1.00 0.00
ECPt 1 if t = 1992-2001
0 if t = 1986-1991
0.62 1.00 0.00
IComit Increase in regional expenditures
needs due to the assignment of
the provision of health and/or
education (see footnote 4)
0.48 1.40 0.00 0.60 BADESPE
+ BOE
%Pop
it

i
it it
Pop Pop , where Pop
it
is
the population of region i in
period t
0.07 0.20 0.01 0.06 INE
c
it
1 if the incumbent at the center
and at the region are on the
same ideological wing
0 otherwise
0.68 1.00 0.00 0.47 eleweb.net
G
it
v
it
C
it
V V , where
C
it
V is the
number of votes that the
incumbent at the center had in
region i in the central elections
hold previous to the period t; V
it

is the total number of votes
0.42 0.58 0.18 0.07 eleweb.net
D
it
Regional debt of region i in
period t (2001 , pc)
462.83 1598.67 17.66 354.88 Banco de
Espana
Dini
it
Regional debt of region i when
the financing system of year t
was negotiated (2001 , pc)
335.71 1413.28 17.74 308.24 Banco de
Espana
i
D
Average debt of region i during
the period 1986-1991 (2001 ,
pc)
155.66 421.28 28.60 106.11 Banco de
Espana
Popit Population of region i in period t 2460272 7403968 260000 2076172 INE
GDP
it
Gross domestic product of
region i in period t (2001 , pc)
8527.25 12706.4 4940.12 1821.42 INE



25
Table 2:
Spanish regional governments bailout
(1986-2001, 15 regions, GMM estimator)

it
Tr
[1]
it
TrND
[2]
it
TrD
[3]
it
Tr
[4]
it
Tr
[5]
it
Tr
[6]
1 it
Tr
0.4379
(4.97)
***

0.4552
(5.70)
***

-.-
0.4489
(5.65)
***

0.4371
(4.87)
***

0.4380
(5.05)
***

1 it
D
0.0899
(1.64)
*

0.0683
(1.62)
*

0.0186
(2.32)
**

-.- -.-
-0.2981
(-2.32)
**

it
ini D.
-.-
-.- -.-
0.0931
(2.07)
**

0.0901
(1.83)
*

-.-
Dac
it



0.0628
(1.75)
*


( )
i it
D D Max , 0 -.-
-.- -.- -.- -.-
0.3956
(2.74)
**

Pop
it
-0.0002
(-0.52)
-0.0001
(-0.98)
-0.0010
(-0.92)
-0.0001
(-0.26)
-0.0002
(-0.50)
-0.0001
(-0.51)
GDP
it
0.0284
(0.77)
0.0354
(0.74)
0.0062
(1.74)
*

0.0365
(0.98)
0.0296
(0.81)
0.0289
(0.78)
ICom
it
445.04
(7.34)
***

451.71
(8.01)
***

5.41
(0.36)
452.18
(7.97)
***

457.99
(7.55)
***

446.53
(7.50)
***

Wald (jt) 119.4
[0.000]
***

155.2
[0.000]
**

121.6
[0.000]
**

272.3
[0.000]
**

207.7
[0.000]
***

301.1
[0.000]
**

Wald (ET) 95.69
[0.000]
***

143.6
[0.000]
**

391.3
[0.000]
**

54.96
[0.000]
**

165.1
[0.000]
***

109.9
[0.000]
**

Sargan 54.08
[1.000]
34.97
[1.000]
-.-
54.96
[1.000]
46.56
[1.000]
73.48
[1.000]
AR(1) -2.180
[0.029]
*

-1.454
[0.146]
*

1.777
[0.076]
-2.139
[0.032]
*

-2.288
[0.022]
**

-2.366
[0.018]
**

AR(2) -0.1422
[0.887]
0.0111
[0.991]
-0.4237
[0.672]
-1.561
[0.118]
-0.0639
[0.949]
-0.0976
[0.922]
LM (MCO vsF/A)
-.- -.-
101.40
[0.000]
***

-.- -.- -.-
Hausm. (F vs A)
-.- -.-
42.17
[0.000]
***

-.- -.- -.-
it
ini D. =
it
ac D.
-.- -.- -.- -.-
1.3443
[0.246]
-.-
Dit + MDit-1=0
-.- -.- -.- -.- -.-
5.8345
[0.017]
**

Notes: 1. Figures in parenthesis are t-statistics;
***
,
**
y
*
: statistically significant at the 99, 95 and 90%
level, respectively. 2. Wald (jt.): Wald test of the null hypothesis that the coefficients of all variables are
null. 3. Wald (ET): Wald test of the null hypothesis of equality of the time effects. 4. Sargan: Sargan test
of instrument validity. 5. AR(1) and AR(2): tests on first and second order error correlation.


26
Table 3:
Economical determinants of Spanish regional governments bailout
(1986-2001, 15 regions, GMM estimator)
Tr
it

[1]
Tr
it

[2]
Tr
it

[3]
Tr
it

[4]
Tr
it

[5]
Tr
it

[6]
1 it
Tr
0.4208
(4.79)
***

0.3201
(5.13)
***

0.4216
(4.77)
***

0.3057
(3.42)
***

0.2523
(3.72)
***

0.2757
(5.11)
***

1 it
D
-.-
-0.1557
(-0.71)
-0.0841
(-1.16)
-0.0689
(-1.37)
-.-
-0.1389
(-1.54)
t it
NECP D
1

-0.1888
(-1.42)
-.-
-.- -.- -0.1685
(-2.98)
***

-.-
t it
ECP D
1

0.1124
(1.85)
*

-.-
-.- -.- -0.1131
(-1.42)
-.-
it it
ICom D
1

-.-
0.1971
(3.49)
***

-.- -.- 0.2089
(1.87)*
-.-
D
it-1
%Pop
it

-.-
-.-
1.3074
(2.59)
***

-0.4594
(-0.42)
0.4746
(-0.493)
-.-
D
it-1
ICom
it
%Pop
it



1.1389
(1.77)
*

-.- -.-
Dit-1IComHit
-.-
-.-
-.- -.-
-.-
0.3637
(3.76)
***

Dit-1IComEit
-.- -.- -.-
-.-
-.-
-0.0675
(-0.66)
Popit -0.0002
(-0.48)
-0.0003
(-0.24)
-0.0003
(-0.33)
-0.0003
(-0.13)
-0.0003
(-0.88)
-0.003
(-0.66)
GDP
it
0.0247
(0.66)
0.0010
(0.03)
0.0001
(0.00)
0.0021
(0.07)
0.0019
(0.07)
0.0072
(0.26)
ICom
it
455.16
(7.76)
***

403.15
(6.74)
***

461.03
(7.93)
***

483.27
(8.03)
***

404.04
(4.30)
***

494.21
(8.22)
***

Wald (jt.) 277.7
[0.000]
***

117.9
[0.000]
***

61.33
[0.000]
***

61.19
[0.000]
***

65.79
[0.000]
***

101.1
[0.000]
***

Wald (ET) 109.9
[0.000]
***

50.1
[0.000]
***

40.12
[0.000]
***

158.3
[0.000]
***

169.0
[0.000]
***

108.8
[0.000]
***

Sargan 44.68
[1.000]
96.58
[0.926]
82.62
[0.994]
44.12
[1.000]
23.81
[1.000]
126.3
[0.284]
AR(1) -2.011
[0.044]
**

-2.526
[0.012]
**

-2.042
[0.041]
**

-2.540
[0.011]
*

-2.567
[0.010]*
-2.531
[0.011]
*

AR(2) -0.1943
[0.846]
0.6690
[0.504]
-0.3151
[0.753]
0.8718
[0.383]
0.7098
[0.478]
0.8676
[0.369]
D
it-1
NECP
t
=
Dit-1ECPit
4.548
[0.033]
**

-.- -.- -.-
0.5724
[0.449]
-.-
D
it
+D
it
X
it
=0 5.990
[0.021]
**

6.3036
[0.0120]
**

6.9011
[0.008]
***

12.8691
[0.003]
**

10.9353
[0.000]
**

5.0638
[0.024]
**

Notes: see notes Table 2.


27
Table 4
Political determinants of Spanish regional governments bailout
(1986-2001, 15 regions, GMM estimator)
Tr
it

[1]
Tr
it

[2]
Tr
it

[3]
Tr
it

[4]
Tr
it

[5]
Tr
it

[6]
1 it
Tr
0.2784
(5.05)
***

0.2811
(6.38)
***

0.2534
(5.02)
***

0.2780
(7.26)
***

0.2680
(6.87)
***

0.2692
(7.07)
***

Dit-1 -0.1579
(-1.51)
-0.1450
(-1.43)
-0.2627
(-1.51)
-0.4246
(-0.69)
-0.3779
(-0.56)
-0.2508
(-0.49)
Dit-1IComHit 0.3404
(3.92)
***

0.3409
(5.11)
***

0.3958
(6.45)
***

0.3092
(5.88)
***

0.3358
(6.48)
***

0.3196
(6.46)
***

Dit-1cit

-0.0025
(-0.06)
-.- -.- -0.0040
(-0.10)
-0.2041
(-0.43)
Dit-1mit


1.4980
(2.30)
**

-.- 0.7638
(1.46)
-.-
Dit-1vit


-.- 0.6107
(3.39)
***

0.4128
(1.90)
*

-.-
D
it-1
c
it
m
it




0.9735
(1.37)
D
it-1
(1-c
it
)m
i




-2.4612
(-1.99)
*

D
it-1
c
it
v
it




0.5344
(2.64)
***

D
it-1
(1-c
it
)v
it

-.-


0.4265
(0.30)
Pop
it
-0.0003
(-0.85)
-0.0003
(-0.28)
-0.0003
(-0.40)
-0.0003
(-0.87)
-0.0003
(-0.86)
-0.0002
(-0.49)
GDP
it
0.0046
(0.16)
0.0156
(0.60)
0.0062
(0.24)
0.0154
(0.68)
0.0168
(0.79)
0.0287
(1.46)
ICom
it
471.05
(10.3)
***

470.84
(9.98)
***

477.39
(10.8)
***

496.33
(10.7)
***

491.57
(10.6)
***

481.10
(10.8)
***

c
it
-49.80
(-2.04)
**

-.- -.- -15.73
(-0.56)
-338.43
(1.39)
m
it
-.- -970.16
(-3.05)
*

-.- -424.24
(-1.61)
-.-
v
it
-.- -.- -.- -857.57
(-6.13)
***

-615.32
(-3.00)
**

-.-
c
it
m
it
-365.76
(-1.00)
(1-c
it
)m
it
381.22
(0.65)
c
it
v
it
-852.12
(-4.21)
***

(1-cit)vit -61.46
(-0.08)


28
Table 4 (continued)
Tr
it

[1]
Tr
it

[2]
Tr
it

[3]
Tr
it

[4]
Tr
it

[5]
Tr
it

[6]
Wald (jt.) 321.7
[0.000]
**

151.4
[0.000]
**

71.92
[0.000]
**

55.90
[0.000]
**

55.68
[0.000]
**

258.5
[0.000]
**

Wald (ET) 312.7
[0.000]
133.9
[0.000]
**

92.31
[0.000]
**

78.12
[0.000]
**

32.91
[0.000]
**

244.3
[0.000]
**

Sargan 52.17
[0.973]
29.84
[1.000]
33.22
[1.000]
25.30
[1.000]
22.18
[1.000]
26.09
[1.000]
AR(1) -2.540
[0.011]
**

-2.419
[0.016]
*

-2.545
[0.011]
**

-2.604
[0.009]
**

-2.551
[0.011]
*

-2.573
[0.010]
*

AR(2) 0.8834
[0.377]
1.030
[0.303]
0.7311
[0.465]
0.9611
[0.337]
0.982
[0.326]
1.090
[0.276]
H0: Dit+DitXit=0 9.776
[0.002]
**

19.803
[0.000]
**

6.6264
[0.010]
*

13.997
[0.000]
**

4.395
[0.036]
*

-.-
H0: Dit+DitXi+
D
it
X
i t
c
it
=0
-.- -.- -.- -.- -.-
3.857
[0.049]
*

H0: Dit+DitXi+
D
it
X
i t
(1-c
it
)=0
-.- -.- -.- -.- -.-
4.130
[0.042]
*

H
0
: D
it
m
i t
c
it
=
D
it
m
i t
(1-c
it
)
-.- -.- -.- -.- -.-
6.868
[0.008]
**

H
0
: D
it
v
i t
c
it
=
D
it
v
i t
(1-c
it
)
-.- -.- -.- -.- -.-
4.021
[0.039]
*


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