This paper attempts to estimate the allocative efficiency for the cities of the state of Sao Paulo, using the model proposed by Brueckner (1982). In that model, under some conditions, the aggregate property value in a community that imposes property tax has an inverted U-shape function with respect to the public good. In other words, the model argues that efficient communities, i.e., those whose local government provides the public good optimally, have public expenditures not affecting the aggregate property value. Using panel data and considering instrumental variables, the results suggest that public expenses affect negatively the capital stock of the cities of the state of Sao Paulo, i.e., the public goods are overprovided in those cities.
allocative efficiency; local public spending; panel data
