The Flypaper Effect
Abstract
What happens to a state's spending when it receives an unconditional grant from the federal government? The standard theoretical analysis predicts that the increase in spending will be the same as that generated by an equivalent increase in local incomes--or roughly 5-10 percent for most states. In contrast, numerous empirical analyses have found that spending increases by much more, with some estimates near 100 percent. This result is known as the 'flypaper effect,' since the money appears to 'stick where it hits.' The authors review this evidence as well as other studies that find similar behavior in firms. Copyright 1995 by American Economic Association.Download Info
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Bibliographic Info
Article provided by American Economic Association in its journal Journal of Economic Perspectives.
Volume (Year): 9 (1995)
Issue (Month): 4 (Fall)
Pages: 217-26
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Handle: RePEc:aea:jecper:v:9:y:1995:i:4:p:217-26
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As found by EconAcademics.org, the blog aggregator for Economics research:- “Kansas Governor Rejects $13 Million in Future Taxes”
by Matt Mitchell in Neighborhood Effects on 2011-08-11 18:13:53 - Stimulating $19,000,000,000 in New State Taxes
by Matt Mitchell in Neighborhood Effects on 2010-09-09 15:56:30
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