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The 'Flypaper Effect' Is Not an Anomaly

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Author Info
Roemer, John (U of California, Davis)
Silvestre, Joaquim (U of California, Davis)
Liu, Holly
Williams, Jeffrey

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Abstract

An in-kind subsidy is equivalent, both theoretically and empirically, to an increase of income for an individual consumer. But the equivalence does not empirically carry over to in-kind grants by a central government to a local one: this has been seen as an anomaly and dubbed the "flypaper effect." We argue that the "anomaly" label is incorrect: the nonequivalence of increases in grants and community income is predicted, almost everywhere, by models that understand collective decision as the outcome of electoral competition among political parties. In addition, we compute politico-economic equilibria for a model with two independent tax parameters and obtain numerical values that agree with the existing empirical literature.

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Paper provided by University of California at Davis, Department of Economics in its series Working Papers with number 00-4.

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Date of creation: Mar 2000
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Handle: RePEc:ecl:ucdeco:00-4

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Find related papers by JEL classification:
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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  1. 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. [Downloadable!] (restricted)
  2. Roemer, John E., 1998. "Why the poor do not expropriate the rich: an old argument in new garb," Journal of Public Economics, Elsevier, vol. 70(3), pages 399-424, December. [Downloadable!] (restricted)
  3. John E. Roemer, . "The Democratic Political Economy Of Progressive Income Taxation," Department of Economics 97-11, California Davis - Department of Economics. [Downloadable!]
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  4. Hines, James R, Jr & Thaler, Richard H, 1995. "The Flypaper Effect," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 217-26, Fall. [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. Gabriella Deborah Legrenzi, 2009. "Asymmetric and Non-Linear Adjustments in Local Fiscal Policy," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  2. 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. [Downloadable!]
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  3. Chen, Shaohua & Mu, Ren & Ravallion, Martin, 2008. "Are there lasting impacts of aid to poor areas ? Evidence from rural China," Policy Research Working Paper Series 4084, The World Bank. [Downloadable!]
  4. Fernando Aragon, 2009. "The Flypaper Effect Revisited," STICERD - Economic Organisation and Public Policy Discussion Papers Series 004, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
  5. Naoki Yoshihara, 2008. "On the General Existence of Pure Strategy Political Competition Equilibrium in Multi-dimensional Party-Faction Models," Discussion Paper Series a511, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
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