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

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  • Levaggi, Rosella
  • Zanola, Roberto

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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Bibliographic Info

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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Web page: http://www.springerlink.com/link.asp?id=102915

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Cited by:
  1. Joan Costa-i-Font & Marin Gemmill & Gloria Rubert, 2009. "Re-visiting the health care luxury good hypothesis: aggregation, precision, and publication biases?," LSE Research Online Documents on Economics 25303, London School of Economics and Political Science, LSE Library.
  2. Brosio, Giorgio & Zanola, Roberto, 2008. "The welfare costs of national standards: a contribution to the debate on the outcomes of de/centralization," POLIS Working Papers 113, Institute of Public Policy and Public Choice - POLIS.
  3. Jorgen Lauridsen & Mickael Bech & Fernando López & Mariluz Sánchez, 2010. "A spatiotemporal analysis of public pharmaceutical expenditure," The Annals of Regional Science, Springer, vol. 44(2), pages 299-314, April.
  4. Bordignon, Massimo & Turati, Gilberto, 2009. "Bailing out expectations and public health expenditure," Journal of Health Economics, Elsevier, vol. 28(2), pages 305-321, March.
  5. Chiara Del Bo & Massimo Florio & Silvia Vignetti & Emanuela Sirtori, 2011. "Additionality and regional development: are EU Structural Funds complements or substitutes of national Public Finance?," Working Papers 201101, Centre for Industrial Studies (CSIL).
  6. Luiz de Mello, 2007. "Local Government Finances: The Link between Intergovernmental Transfers and Net Worth," OECD Economics Department Working Papers 581, OECD Publishing.
  7. 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.
  8. Steven C. Deller & Craig S. Maher, 2006. "A Model of Asymmetries in the Flypaper Effect," Publius: The Journal of Federalism, Oxford University Press, vol. 36(2), pages 213-229.
  9. Elena Gennari & Giovanna Messina, 2012. "How sticky are local expenditures in Italy? Assessing the relevance of the “flypaper effect” through municipal data," Temi di discussione (Economic working papers) 844, Bank of Italy, Economic Research and International Relations Area.
  10. Fernando João Alexandre Parmagnani & Fabiana Fontes Rocha, 2013. "Evaluating the impact of SUS transfers on municipalities' health expenditures," Working Papers, Department of Economics 2013_23, University of São Paulo (FEA-USP), revised 15 Jan 2014.
  11. Brosio, Giorgio & Zanola, Roberto, 2006. "Can violence be rational? An empirical analysis of Colombia," POLIS Working Papers 74, Institute of Public Policy and Public Choice - POLIS.
  12. Pablo Acosta, 2010. "The “flypaper effect” in presence of spatial interdependence: evidence from Argentinean municipalities," The Annals of Regional Science, Springer, vol. 44(3), pages 453-466, June.
  13. Laura Sour, 2013. "The flypaper effect in Mexican local government," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 28(1), pages 165-186.
  14. Silvia Fedeli, 2012. "The impact of GDP on health care expenditure: the case of Italy (1982-2009)," Working Papers 153, University of Rome La Sapienza, Department of Public Economics.
  15. Vincenzo Atella & Federico Belotti & Domenico Depalo & Andrea Piano Mortari, 2013. "Measuring spatial effects in presence of institutional constraints: the case of Italian Local Health Authority expenditure," CEIS Research Paper 278, Tor Vergata University, CEIS, revised 08 May 2013.
  16. Elena Gennari & Giovanna Messina, 2014. "How sticky are local expenditures in Italy? Assessing the relevance of the flypaper effect through municipal data," International Tax and Public Finance, Springer, vol. 21(2), pages 324-344, April.

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