Regression analysis and the assessment of local expenditure need ‐ a reconsideration

In Norway decentralised provision of welfare services is combined with a centralised system of financing local and county governments. The paper offers an overview of the historical background of centralised financing, and discusses the economic consequences in relation to recent empirical analyses of local government resource use. The main findings are: (i) Norwegian local governments are not very responsive to changes in the age composition of the population; (ii) the degree of sluggishness is related to interest group pressure; (iii) local governments with a ‘weak’ political leadership are more likely to accommodate interest group pressure to increase spending and thereby the budget deficit; (iv) ‘strong’ central governments seem to be less vulnerable to strategic grant‐seeking behaviour by local governments.