Do local authorities set local fiscal variables to influence population flows?

Abstract

The paper presents an empirical test of local fiscal competition in Norway based on the observation that interregional migration during the business cycle creates very different incentives for rural and urban municipalities to influence population movements. Panel-data evidence is presented suggesting that municipalities indeed attempt to control population flows. The sensitivity of municipal spending and revenue decisions to population movements varies between municipalities in a way that is consistent with the municipalities' incentives to influence location decisions of households.