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Why not fully spend a conditional block grant?

Author

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  • Riemer P. Faber

    (Charles River Associates, European Competition Practice)

  • Pierre Koning

    (Leiden University
    Tinbergen Institute
    IZA)

Abstract

This paper studies a conditional block grant that Dutch municipalities receive for welfare-to-work programs. Many municipalities do not fully use this grant, although programs are beneficial for them. We argue that municipalities incur expenses to use the grant. If these costs are substantial, then it is optimal not to fully use the grant. Based on municipality-specific data on grants and actual expenditures, we estimate that municipalities have to add about 90 cents from their own resources to spend 1 euro of the grant. As a result, the conditional block grant is de facto a closed-ended matching grant.

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  • Riemer P. Faber & Pierre Koning, 2017. "Why not fully spend a conditional block grant?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(1), pages 60-95, February.
    • Handle: RePEc:kap:itaxpf:v:24:y:2017:i:1:d:10.1007_s10797-016-9397-0
    DOI: 10.1007/s10797-016-9397-0
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    Cited by:

    1. Linda Toolsema & Maarten Allers, 2014. "Welfare Financing: Grant Allocation and Efficiency," De Economist, Springer, vol. 162(2), pages 147-166, June.
    2. Koning, Pierre, 2013. "Making Work Pay for the Indebted: The Effect of Debt Services on the Exit Rates of Unemployed Individuals," IZA Discussion Papers 7873, Institute of Labor Economics (IZA).
    3. Vallés-Giménez, Jaime & Zárate-Marco, Anabel, 2017. "Catalytic effect of capital transfers in a federal context: The case of Spanish regions," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 11, pages 1-27.

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    More about this item

    Keywords

    Intergovernmental grants; Conditional block grants; Welfare-to-work programs;
    All these keywords.

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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