Spatial Spillover Effects of Fiscal Expenditure on Employed Population in Taiwan

This study aims to examine the impact of local government fiscal expenditure on employment in Taiwan and to investigate whether such effects exhibit spatial spillovers. Employment is a crucial foundation for economic development and social stability, and understanding how fiscal expenditure influences the labor market provides valuable implications for policymaking. Using panel data from 22 counties and cities in Taiwan covering the period 2000–2023, with data obtained from the Directorate General of Budget, Accounting and Statistics (DGBAS), this study constructs a contiguity-based spatial weight matrix. The empirical tests reveal that the Spatial Durbin Model (SDM) provides greater explanatory power than the Spatial Lag Model (SLM) and the Spatial Error Model (SEM). The SDM with spatial and time fixed effects is ultimately adopted, followed by an effects decomposition analysis. The results indicate that expenditures on education, science, and culture, as well as economic development, have stable and positive impacts on employment, accompanied by significant spillover effects. Pension and retirement benefits expenditures also exert positive effects. In contrast, general administrative expenditures show negative impacts, while social welfare expenditures have positive local effects but negative spillovers to neighboring regions. Community development and environmental protection expenditures mainly contribute through positive externalities. JEL classification numbers: C33, C21, E62. Keywords: Fiscal expenditure, Employment, Spatial spillover effects, Spatial Durbin Model.