Cost-efficient factors in local public spending: Detecting relationships between local environments, population size and urban area category

Abstract

This study examines regional differences in local environment factors to better understand the sustainability of local governments indexed by per capita public spending. Under the condition of heterogeneous population size, we examine how factor characteristics differ depending on the spatial context represented by the urban area category. By employing a Cobb–Douglas cost function with congestion effects on public service provision, the estimated factors enable us to articulate major factors and differences in cost-efficiency between urban area categories. We found that statistical significance and even the signatures of local environment factors differ depending on the urban employment area category. Regarding factors such as the ratios of employees in secondary and tertiary industries, these did not tend to be statistically significant in small-sized urban areas, while small-sized cities in large-sized urban areas were likely to gain confidence intervals. Moreover, we did not observe any statistical significance for the ratio of elderly people due to the balance of spending between national and local governments. These findings could contribute to sustainable management of cities in the advent of population decline.