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Vandudzai Mbanda, Department of Economics and Econometrics, University of Johannesburg, South Africa

Lumengo Bonga-Bonga, Department of Economics and Econometrics, University of Johannesburg, South Africa

Municipal Infrastructure Spending Capacity in South Africa: A Panel Smooth Transition Regression Approach

Volume 76 - Issue 1, February 2023
(pp. 41-64)
JEL classification: C30; C51; H72
Keywords: Capital Budget Spending; Transfers, Municipalities; Panel Smooth Transition Regression


This paper assesses the factors that contribute to underspending of capital budget at the local government level by making use of a nonlinear model based on the panel smooth transition regression (PSTR) model. South Africa is used as a case study.  Capital transfer is identified as an important threshold variable in that the degree to which municipalities spend their capital budget depends on a threshold determined by capital transfer received from the national government. The results of the empirical analysis show that large amounts of capital transfers to local government contribute to underspending by municipalities in South Africa.  Moreover, the results indicate that capital budget spending could be improved if municipalities are incentivised to raise their own revenues.

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Institute for International Economics
of the Genoa Chamber of Commerce

Istituto di Economia Internazionale
Camera di Commercio di Genova
Via Garibaldi, 4 (III piano) - 16124 Genova (Italy)