The Response of the Arabian Gulf Economies to the Changes in World Oil Prices

Abstract

This paper examines a model of demand for local government-provided goods, and applies this to municipal spending in Turkey. Two sets of variables are tested: the socio-economic characteristics of the localities, and the political variables. The results are generally in line with the previous findings for a set of socio-economic variables, however none of the political variables seem to have explanatory power, probably because of the high dependence of local governments on the central government and hence the lack of local accountability. We argue that the present system motivates local politicians to prefer relying on the central government rather than the local revenue sources as a way of avoiding the tax-related political risks. Thus, a serious local tax reform could be a crossroad to create local-political accountability.