Municipal centrality and strategic interaction in deciding on public healthcare spending

Abstract This article examines the influence that the municipalities of the state of Santa Catarina exerted on each other in deciding how much to spend on healthcare, in 2010. Using central place theory as a starting point, this paper focuses on the idea that there existed certain vertical relationships between central and peripheral municipalities, especially in more specific services such as those provided by hospitals. We argue that this type of vertical interaction occurs simultaneously with horizontal interaction and that, when the former is not considered, the latter may end up being concealed. We used a spatial self-regression model to test this hypothesis. The empirical results of the test support this idea, showing that the central municipalities have higher costs in terms of their sub-function of hospital services. We also found evidence that when the model takes centrality into account, then the horizontal spatial dependency coefficient becomes more pronounced.