HomeIAMURE International Journal of Business and Managementvol. 2 no. 1 (2012)

Estimation of Interdependent Behavior of City Government Units of the Philippines Using the Les Model

Ronald D. Estrada



For local units to be effective in their functions, their resources need to be spent in a way that will meet the need of local community. The main objective of the study is to estimate the demand of the basic social services provided by the city governments in the Philippines with the influence of spatial effects using the Linear Expenditure System (LES). The study used the descriptive research technique. Results showed that the LES model incorporated with spatial effects fits the data reasonably well compared to the ES model without spatial effect. Fiscal interactions among cities were found significant with education and social welfare services. Subsistence expenditure level of each service sector was found statistically significant except for local tax revenue that was treated as negative expenditure. Some identified cost variables of respective service sectors were found significant predictors of subsistence expenditure level of each service sectors. All marginal discretionary income shares were found statistically significant across the service sectors. The study conclude that both population density and saving rate of the previous year significantly predicted marginal discretionary income share of each service sector. Elasticity results revealed that all basic social services were found to be normal goods and demands for these services tend to be inelastic with respect to government income.