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Intergovernmental Grants: A Formal Model of Interrelated National and Subnational Political Decisions

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  • Craig Volden

Abstract

Intergovernmental grants are based on the interrelated choices of: (i) the national government deciding whether to offer the grant; (ii) the national government determining grant conditions; (iii) the subnational government deciding whether to accept the grant; and (iv) the subnational government determining policy, including spending levels, upon grant receipt. Empirically and theoretically, scholars often study these decisions separately, leading to an incomplete understanding of grant-related behavior. This article develops a noncooperative game theoretic model that simultaneously captures all four of these decisions. This approach helps to better explain puzzles surrounding intergovernmental grants, including the 'flypaper effect,' asymmetric responses of recipient governments to grant increases and decreases, the grant-acceptance decisions of subnational governments, and tradeoffs between the size of grants and the strings that are attached. Copyright 2007, Oxford University Press.

Suggested Citation

  • Craig Volden, 2007. "Intergovernmental Grants: A Formal Model of Interrelated National and Subnational Political Decisions," Publius: The Journal of Federalism, CSF Associates Inc., vol. 37(2), pages 209-243, Spring.
    • Handle: RePEc:oup:publus:v:37:y:2007:i:2:p:209-243
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    File URL: http://hdl.handle.net/10.1093/publius/pjl022
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    Cited by:

    1. Bev Dahlby & Ergete Ferede, 2016. "The stimulative effects of intergovernmental grants and the marginal cost of public funds," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(1), pages 114-139, February.
    2. Charles R. Shipan & Craig Volden, 2008. "The Mechanisms of Policy Diffusion," American Journal of Political Science, John Wiley & Sons, vol. 52(4), pages 840-857, October.
    3. Zudenkova, Galina, 2010. "Split-ticket voting: an implicit incentive approach," UC3M Working papers. Economics we1011, Universidad Carlos III de Madrid. Departamento de Economía.
    4. Dahlby, Bev & Rodden, Jonathan & Wilson, Sam, 2009. "A Median Voter Model of the Vertical Fiscal Gap," Working Papers 2009-14, University of Alberta, Department of Economics.
    5. Karsten Staehr & Katri Urke, 2022. "The European structural and investment funds and public investment in the EU countries," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(4), pages 1031-1062, November.
    6. Zudenkova, Galina, 2011. "A political agency model of coattail voting," Journal of Public Economics, Elsevier, vol. 95(11), pages 1652-1660.
    7. 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.
    8. Juan González Alegre, 2012. "An evaluation of EU regional policy. Do structural actions crowd out public spending?," Public Choice, Springer, vol. 151(1), pages 1-21, April.
    9. Carlos A. Vegh y Guillermo Vuletin, 2016. "Unsticking the flypaper effect using distortionary taxation," Económica, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 62, pages 185-237, January-D.
    10. 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.
    11. Bev Dahlby, 2011. "The marginal cost of public funds and the flypaper effect," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(3), pages 304-321, June.
    12. Brown, Marilyn A. & Cox, Matt & Baer, Paul, 2013. "Reviving manufacturing with a federal cogeneration policy," Energy Policy, Elsevier, vol. 52(C), pages 264-276.
    13. Daniel Aparicio-Pérez & Maria Teresa Balaguer-Coll & Emili Tortosa-Ausina, 2021. "Politics against Economics: The Case of Spanish Regional Financing," Working Papers 2021/15, Economics Department, Universitat Jaume I, Castellón (Spain).
    14. Bev Dahlby & Jonathan Rodden, 2013. "A political economy model of the vertical fiscal gap and vertical fiscal imbalances in a federation," Working Papers 2013/18, Institut d'Economia de Barcelona (IEB).
    15. Juan González-Alegre, 2015. "Does fiscal decentralization affect the effectiveness of intergovernmental grants? European regional policy and Spanish autonomous regions," Papers in Regional Science, Wiley Blackwell, vol. 94(4), pages 817-847, November.
    16. Francois K. Doamekpor & Julia Beckett, 2015. "Federal Economic Development Transfers to State and Local Governments," Economic Development Quarterly, , vol. 29(1), pages 49-64, February.
    17. Bev Dahlby & Jonathan Rodden, 2013. "A political economy model of the vertical fiscal gap and vertical fiscal imbalances in a federation," Working Papers 2013/18, Institut d'Economia de Barcelona (IEB).
    18. Jessica Terman & Richard Feiock, 2015. "Third-Party Federalism: Using Local Governments (and Their Contractors) to Implement National Policy," Publius: The Journal of Federalism, CSF Associates Inc., vol. 45(2), pages 322-349.
    19. Sarnetska, Yana, 2020. "Priorities For The Distribution Of Interbudgetary Transfers Under The Conditions Of Fiscal Decentralization In Ukraine," EUREKA: Social and Humanities, Scientific Route OÜ, issue 1, pages 35-45.
    20. Dahlby, Bev, 2009. "The Optimal Taxation Approach to Intergovernmental Grants," Working Papers 2009-16, University of Alberta, Department of Economics.

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