Search

Understanding the impact of central government grants on decentralized healthcare provision is of crucial importance for the design of grant systems, yet empirical evidence on the prevalence of flypaper effects in this domain is rare. We study the decentralization of home care in the Netherlands and exploit the gradual introduction of formula-based equalization to identify the effect of exogenous changes in an unconditional block grant on local expenditure and utilization. A one euro increase in central government grants raises local expenditure by twenty to fifty cents. Adjustments occur through the number of hours as well as through substitution between basic and more advanced types of assistance. These findings suggest that conditioning of grants is not required for the central government to retain a moderate degree of control over the decentralized provision of care. [ABSTRACT FROM AUTHOR]

This paper tests the hypothesis that the stimulative effects of intergovernmental grants increase with the marginal cost of public funds of the recipient government. We present a simple theoretical framework that shows how a lump-sum transfer stimulates the marginal expenditures of a recipient government through an income effect and a price effect. We then test the prediction of this model using Canadian provincial data and exploit the discontinuity in the equalization grants allocation formula to identify the effects of grants. Our results indicate that the stimulative effects of lump-sum grants on spending increase with the provincial government's marginal cost of public funds (MCF). One policy implication of our results is that higher intergovernmental transfers may be welfare improving if the federal government has a lower MCF than the provinces. [ABSTRACT FROM AUTHOR]

Most of the early empirical estimates on effects of intergovernmental grants contradict theoretical predictions. In the more recent literature that emphasizes the importance of convincing empirical strategies, the results are more mixed. This paper contributes to this literature by estimating causal effects on local expenditures and income taxes of general, unconditional grants. This is done in a difference-in-difference model utilizing policy-induced increases in grants to a group of remotely populated municipalities in Finland. The finding is that increased grants have a statistically and economically significant positive immediate effect on local expenditures. The effect on local income taxes, while statistically significant, is considerably smaller in magnitude. Furthermore, there is no evidence of dynamic crowding-out-i.e., that the immediate response in expenditures is reversed in later years. [ABSTRACT FROM AUTHOR]

An extensive literature analysed the impact of upper tier transfers on spending behaviour of lower level governments finding evidence of a flypaper effect, an overreaction to varying grants from upper tiers. Our work seeks to supplement a dearth of evidence for the Italian case by focusing on the responsiveness of municipal expenditures to State grants. We use a panel of almost 8,000 municipalities from 1999 to 2006. Budget data are matched with several other information sources, enabling us to investigate also the role played by some important political factors like the electoral cycle or the political strength of local cabinets. Application of panel data techniques with the use of instrumental variables and a dynamic setting highlights the presence of a sizeable flypaper effect and a significant role for political variables while the asymmetric response is not confirmed in all specifications. [ABSTRACT FROM AUTHOR]

The aim of this paper is to investigate the impact of fiscal decentralization on the size of regional governments in Spain, by controlling for economies of scale, interregional heterogeneity and institutional framework. We study it over 1985 to 2004 using a panel dataset of seventeen spanish regions. The results can be easily summarized. Firstly, it supports the classic public goods theory of a trade-off-between the economic benefits of size and the costs of heterogeneity. Secondly, it doesn't reject the 'Leviathan' hypothesis and neither does the 'common pool' hypothesis. Thirdly, by contrast, the paper partly rejects the 'Wallis'' hypothesis. It argues that government size is mediated by financial resources obtained through intergovernmental grants, consistent with welfare economics and positive economic policies. We conclude that later advances in the decentralisation process must be compatible with the goal of reducing fiscal imbalances that emanate from the vertical structure of fiscal power. [ABSTRACT FROM AUTHOR]

lump-sum intergovernmental transfer has a 'price effect', as well as an 'income effect', because it allows the recipient government to reduce its tax rate, which lowers its marginal cost of public funds, while still providing the same level of public service. This reduction in the effective price of providing the public service helps to explain the 'flypaper effect'-the empirical observation that a lump-sum grant has a much larger effect on spending than an increase in personal income. Contrary to the assertions of Mieszkowski (Modern Public Finance, ) and Hines and Thaler (J. Econ. Perspect. 9:217-226, ), a model of a benevolent local government financing its expenditures with a distortionary tax predicts flypaper effects from lump-sum grants that are similar to those observed in many econometric studies. [ABSTRACT FROM AUTHOR]

What is the impact of bureaucratic behaviors on tax rates? What is preferable: a bureaucrat or a partisan politician? Does a flypaper effect occur when lobby groups influence public policies? This article tries to answer these questions by analyzing and comparing six different models of public choice: (1) the median voter model, (2) the Leviathan model, (3) the slack-maximizing model, (4) a general model of bureaucracy, (5) the partisan politicians model and (6) a general model of lobbying. Among several results, it is shown that the median voter’s income and tax share almost always play a significant role in the design of the public good/tax package, even if the government does not explicitly try to maximize the median voter’s utility. The article also provides a synthesis of the positive analysis of the flypaper effect. [ABSTRACT FROM AUTHOR]

This report focuses on state government appropriations to state arts agencies (SAA), a primary figure in arts and cultural policy in the United States. A dynamic panel-data estimator can identify the fiscal, institutional, and demographic determinants on SAA appropriations. Agency budgets are particularly sensitive to past appropriations, past state revenues and NEA grants, some demographic variables, party control of state government, and state budgeting rules. Federal funds attract, rather than crowd out, state appropriations. While the influence of some demographic variables may be shifting over time, income growth continues to explain much of SAA appropriations. [ABSTRACT FROM AUTHOR]

In Italy, public expenditure reduction is achieved through a revision of social security and health care programs. In particular, public health expenditure control has been implemented through a reform that imposes more stringent budget rules to local governments and a considerable reduction in grants-in-aid from the central government. This paper investigates empirically whether the response to this decrease in categorical lump-sum grants from the central to local governments results in an asymmetric response to intergovernmental grants. Hard budget and soft budget constraint hypotheses are estimated by using a sample of cross-sectional and time observations covering the 20 Italian regions over the period 1989-1993. The main finding is the existence of a standard and a super flypaper effect in both models. The introduction of the soft-budget constraint hypothesis results in a stronger effect of grants and a lower response of own resources which shows that local governments prefer to incur some deficit instead of reducing health care expenditure. [ABSTRACT FROM AUTHOR]