Determinants of local public school expenditure: a dynamic panel data model

This paper investigates determinants of local authorities' school expenditure. Hypotheses are derived from an expenditure demand model incorporating a school cost function. The empirical analysis exploits the panel structure of the dataset (for the 275 municipalities in Denmark over the period 1984-1996) by Generalized Method of Moments estimation of a dynamic model taking into account unobserved municipal-specific effects and possible endogeneity of the explanatory variables. Comparing with more standard estimations of the model, the results indicate that flexible estimation of a dynamic model controlling for unobserved municipal-specific effects is needed to avoid biased parameter estimates. (C) 2003 Elsevier B.V. All rights reserved.