In most industrialized economies the services sector accounts for more than half the GNP. Moreover, the services sector, unlike other sectors, has grown steadily over the past two decades. The productivity of the sector, on the other hand, has remained broadly static over the comparable period....

Using a panel of 308 observations over the period 1989–1996, we analyse how Flemish municipalities react to budgetary shocks. We address two questions: whether governments respond differently to tax than to grant windfalls and whether responses to positive and negative shocks are symmetric....