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We study voting over higher-education finance in an economy with two regions and two separated labor markets. Households differ in their financial endowment and their children's ability. Nonstudents are immobile. Students decide where to study; they return home after graduation with exogenous probability. The voters of the two regions decide on whether to subsidize higher-education costs or to rely on tuition fees only. We find that in equilibrium, in both regions a majority votes for subsidies when the return probability is sufficiently small. When that probability is large, both regions opt for full tuition finance.
Through an intertemporal budget constraint, jurisdictions may gain advantages in tax and spending competition by 'competing' on debt. While the existing spatial econometric literature focuses on tax and spending competition, very little is known about spatial interaction via public debt. If jurisdictions compete for mobile capital to finance public spending, they may compete in debt levels as well as taxes. We use a theoretical model to derive the reaction of jurisdictions' debt levels to their neighbors' debts. We then estimate the spatial interdependence of public debt among German municipalities using a panel on municipalities in the two largest German states from 1999 to 2006. We find significant and robust interaction effects between debt levels of neighboring municipalities, which we compare to spatial tax and spending interactions. The results indicate that a municipality increases its per capita debt by 16-33 Euro as a reaction to an increase of 100 Euro in neighboring municipalities. (C) 2015 Elsevier B.V. All rights reserved.