Testing linearity of spatial interaction functions à la Ramsey
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arXiv
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| Format: | Preprint |
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2024
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| _version_ | 1866918003199705088 |
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| author | Gupta, Abhimanyu Lee, Jungyoon Rossi, Francesca |
| author_facet | Gupta, Abhimanyu Lee, Jungyoon Rossi, Francesca |
| contents | We propose a computationally straightforward test for the linearity of a spatial interaction function. Such functions arise commonly, either as practitioner imposed specifications or due to optimizing behaviour by agents. Our conditional heteroskedasticity robust test is nonparametric, but based on the Lagrange Multiplier principle and reminiscent of the Ramsey RESET approach. This entails estimation only under the null hypothesis, which yields an easy to estimate linear spatial autoregressive model. Monte Carlo simulations show excellent size control and power. An empirical study with Finnish data illustrates the test's practical usefulness, shedding light on debates on the presence of tax competition among neighbouring municipalities. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2412_14778 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Testing linearity of spatial interaction functions à la Ramsey Gupta, Abhimanyu Lee, Jungyoon Rossi, Francesca Econometrics We propose a computationally straightforward test for the linearity of a spatial interaction function. Such functions arise commonly, either as practitioner imposed specifications or due to optimizing behaviour by agents. Our conditional heteroskedasticity robust test is nonparametric, but based on the Lagrange Multiplier principle and reminiscent of the Ramsey RESET approach. This entails estimation only under the null hypothesis, which yields an easy to estimate linear spatial autoregressive model. Monte Carlo simulations show excellent size control and power. An empirical study with Finnish data illustrates the test's practical usefulness, shedding light on debates on the presence of tax competition among neighbouring municipalities. |
| title | Testing linearity of spatial interaction functions à la Ramsey |
| topic | Econometrics |
| url | https://arxiv.org/abs/2412.14778 |