Exploring Differences in Expenditure for the Functionally Impaired: Neighborhood Interaction and the Federal Structure

The purpose of this paper is to study the determinants of the differences in expenditure on services for functionally impaired individuals among municipalities in Sweden. Expenditure per capita differs greatly across municipalities, even when accounting for the nature of the service. A spatial autoregressive model is used to test whether the decisions on the expenditure level in a neighboring municipality affect the municipality’s own expenditure. The results show that a positive spatial interaction exists among neighbors. However, when controlling for level differences among counties the spatial interaction coefficient becomes negative although not significantly determined. Therefore, the positive interaction first found can be interpreted either as a result of differences in the way county councils diagnose individuals or due to interaction or mimicking among neighbors belonging to the same county council.