Spillover effects of remittances on local public spending in developing economies

We develop a political economy model to study spatial spillover eefcts of remiatnces on local public goods with inter-regional positive externalities. Our model postulates that spillovers of remiatnces are asymmetric with a complex paetrn that depends on the degree of externalities of public spending, the inter-regional inequality of income, and whether local public goods are complementary or substi tutes. We develop several tests to be verified empirically, for instance, our model states that if local public goods are substtiutes and externalietis are moderate, remiatnces re ceived by households in one locality increase government spending in that locality but reduce spending in other districts. If externalietis are signicfiant, remiatnces aefct local public spending in high-income localities but do not aefct spending in low-income localities.