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The Flypaper Effect Revisited

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  • Fernando Aragon

Abstract

This paper argues that there is nothing anomalous about the flypaper effect. Idevelop a simple median voter model of government spending with costly taxcollection that predicts the flypaper effect and provide a quantifiable measure of itsmagnitude. Using the model insights and previous estimates, I show that a tax ratebetween 8% to 16% would account for the flypaper effect observed in U.S. subnationalgovernments.

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File URL: http://sticerd.lse.ac.uk/dps/eopp/eopp04.pdf
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Bibliographic Info

Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Economic Organisation and Public Policy Discussion Papers Series with number 004.

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Date of creation: Jan 2009
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Handle: RePEc:cep:stieop:004

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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

Related research

Keywords: flypaper effect; intergovernmental transfers; public finance; fiscaldecentralization;

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  1. 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.
  2. Shah, Anwar, 2006. "A practitioner's guide to intergovernmental fiscal transfers," Policy Research Working Paper Series 4039, The World Bank.
  3. Hamilton, Jonathan H., 1986. "The flypaper effect and the deadweight loss from taxation," Journal of Urban Economics, Elsevier, vol. 19(2), pages 148-155, March.
  4. Brian Knight, 2002. "Endogenous Federal Grants and Crowd-out of State Government Spending: Theory and Evidence from the Federal Highway Aid Program," American Economic Review, American Economic Association, vol. 92(1), pages 71-92, March.
  5. Hamilton, Bruce W., 1983. "The flypaper effect and other anomalies," Journal of Public Economics, Elsevier, vol. 22(3), pages 347-361, December.
  6. John Roemer & Selva Demiralp & Holly Liu & Jeffrey Williams, 2003. "The 'Flypaper Effect' is not an anomaly," Working Papers 04, University of California, Davis, Department of Economics.
  7. van de Walle, Dominique & Ren Mu, 2007. "Fungibility and the flypaper effect of project aid : micro-evidence for Vietnam," Policy Research Working Paper Series 4133, The World Bank.
  8. Slemrod, Joel, 1990. "Optimal Taxation and Optimal Tax Systems," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 157-78, Winter.
  9. Bradford, David F & Oates, Wallace E, 1971. "An Analysis of Revenue Sharing in a New Approach to Collective Fiscal Decisions," The Quarterly Journal of Economics, MIT Press, vol. 85(3), pages 416-39, August.
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Cited by:
  1. Baja Daza, Gover & Villarroel Böhrt, Sergio & Zavaleta Castellón, David, 2012. "Diseño institucional e incentivos implicitos en la descentralización Boliviana (1994-2008)
    [Institutional design and implicit incentives in Bolivia's decentralization model (1994-2008)]
    ," MPRA Paper 48598, University Library of Munich, Germany.

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