Mo Money Mo State -Do more public agencies bump up the local tax revenues?

Abstract: In this thesis the subject has been to investigate if there is any connection between government agency presence and tax revenue in the municipality. Previous studies in Sweden have more focused at the intergovernmental relation between state and local level and especially they have focused on government grants and the effects. But this thesis recognizes that the government can also shift the distribution of the public agencies in there allocation as a benefit for the local area. According to theory it seems that people with same profession and producers of one good or service want to be allocated near to each other, a combination of agglomeration, scale effects and cluster effect which will stimulate growth. With an investigation on how the distribution on how the public agency are located combined with register data over what people work with, it seems that there is some small public agencies clusters namely the county capitals. Further, as method to check if there is any connection between governmental presences and tax revenues a regression analysis have been conducted. The used sample is aggregated panel data of 290 Swedish municipalities over ten years. Results are mixed and there is no robust result that is supporting the hypothesis that more people work in a public agency will bump up the tax revenue. There is an indication that increased ratio with people who work in public administration or in military forces will bump up the tax revenue. The result is regardless if the measure is on the ratio how many works in the municipality or how many work in that sector and lives in the municipality. But when to look in general of people working in a government agency there is no significant result regardless of measure. Thereby, the overall conclusion is the result is mixed and the hypothesis is not confirmed.