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Flypaper Effect and Sluggishness: Evidence from Regional Health Expenditure in Italy

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Author Info
Levaggi, Rosella
Zanola, Roberto

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Abstract

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. Copyright 2003 by Kluwer Academic Publishers

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Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 10 (2003)
Issue (Month): 5 (September)
Pages: 535-47
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Handle: RePEc:kap:itaxpf:v:10:y:2003:i:5:p:535-47

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Gouveia, Miguel, 1997. " Majority Rule and the Public Provision of a Private Good," Public Choice, Springer, vol. 93(3-4), pages 221-44, December. [Downloadable!] (restricted)
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  2. Bailey, Stephen J & Connolly, Stephen, 1998. " The Flypaper Effect: Identifying Areas for Further Research," Public Choice, Springer, vol. 95(3-4), pages 335-61, June. [Downloadable!] (restricted)
  3. Kornai, Janos, 1986. "The Soft Budget Constraint," Kyklos, Blackwell Publishing, vol. 39(1), pages 3-30.
  4. Brennan, G. & Pincus, J. J., 1996. "A minimalist model of federal grants and flypaper effects," Journal of Public Economics, Elsevier, vol. 61(2), pages 229-246, August. [Downloadable!] (restricted)
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  5. Borge, Lars-Erik & Rattso, Jorn & Sorensen, Rune, 1995. " Local Government Service Production: The Politics of Allocative Sluggishness," Public Choice, Springer, vol. 82(1-2), pages 135-57, January.
  6. Levaggi, Rossella, 2000. "Health Care Expenditure across OECD Countries: A Public Choice Approach," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 53(2), pages 203-219.
  7. Worthington, Andrew C & Dollery, Brian E, 1999. " Fiscal Illusion and the Australian Local Government Grants Process: How Sticky Is the Flypaper Effect?," Public Choice, Springer, vol. 99(1-2), pages 1-13, April. [Downloadable!] (restricted)
  8. Dewatripont, M & Maskin, E, 1995. "Credit and Efficiency in Centralized and Decentralized Economies," Review of Economic Studies, Blackwell Publishing, vol. 62(4), pages 541-55, October. [Downloadable!] (restricted)
  9. Gramlich, Edward M, 1989. "Budget Deficits and National Saving: Are Politicians Exogenous?," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 23-35, Spring. [Downloadable!] (restricted)
  10. Wyckoff, Paul Gary, 1991. "The elusive flypaper effect," Journal of Urban Economics, Elsevier, vol. 30(3), pages 310-328, November. [Downloadable!] (restricted)
  11. Turnbull, Geoffrey K., 1998. "The Overspending and Flypaper Effects of Fiscal Illusion: Theory and Empirical Evidence," Journal of Urban Economics, Elsevier, vol. 44(1), pages 1-26, July. [Downloadable!] (restricted)
  12. Becker, Elizabeth, 1996. " The Illusion of Fiscal Illusion: Unsticking the Flypaper Effect," Public Choice, Springer, vol. 86(1-2), pages 85-102, January.
  13. Strumpf, Koleman S., 1998. "A predictive index for the flypaper effect," Journal of Public Economics, Elsevier, vol. 69(3), pages 389-412, September. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Giardina, Emilio & Cavalieri, Marina & Guccio, Calogero & Mazza, Isidoro, 2009. "Federalism, Party Competition and Budget Outcome: Empirical Findings on Regional Health Expenditure in Italy," MPRA Paper 16437, University Library of Munich, Germany. [Downloadable!]
  2. Costa-Font, J & Gemmill, M & Rubert, G, 2009. "Re-visiting the Health Care Luxury Good Hypothesis: Aggregation, Precision, and Publication Biases?," Health, Econometrics and Data Group (HEDG) Working Papers 09/02, HEDG, c/o Department of Economics, University of York. [Downloadable!]
    Other versions:
  3. Brosio, Giorgio & Zanola, Roberto, 2006. "Can violence be rational? An empirical analysis of Colombia," P.O.L.I.S. department's Working Papers 74, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
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