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Intergovernmental grants and fiscal competition

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Author Info

  • Jakobsson, Niklas

    ()
    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Nordblom, Katarina

    ()
    (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract

This theoretical paper shows how a central government can induce a policy concerning a municipal matter through a package of a policy requirement and a grant. We find that, due to fiscal competition and the possibility for citizens to move between municipalities, the central government can make all municipalities adopt the policy requirement despite the grant not being sufficiently high to make them gain from the reform. We apply this model to a recent Swedish child-care fee reform and can explain why all Swedish municipalities implemented the maximum child-care fee although it had a negative impact on many municipalities’ finances.

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File URL: http://hdl.handle.net/2077/18961
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Bibliographic Info

Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 338.

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Length: 32 pages
Date of creation: 08 Jan 2009
Date of revision:
Handle: RePEc:hhs:gunwpe:0338

Contact details of provider:
Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
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Related research

Keywords: child care; fiscal competition; municipality; intergovernmental grant;

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References

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  1. Roger H. Gordon & John D. Wilson, 2001. "Expenditure Competition," NBER Working Papers 8189, National Bureau of Economic Research, Inc.
  2. Mansoorian, Arman & Myers, Gordon M., 1997. "On the consequences of government objectives for economies with mobile populations," Journal of Public Economics, Elsevier, vol. 63(2), pages 265-281, January.
  3. Clemens Fuest & Martin Kolmar, 2004. "A Theory of User-Fee Competition," CESifo Working Paper Series 1166, CESifo Group Munich.
  4. Kathleen Day & Stanley Winer, 2006. "Policy-induced internal migration: An empirical investigation of the Canadian case," International Tax and Public Finance, Springer, vol. 13(5), pages 535-564, September.
  5. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
  6. Bergstrom, T. & Blomqust, S., 1993. "The Political Econmomy of Subsidized Day Care," Papers 1993-15, Uppsala - Working Paper Series.
  7. Jan K. Brueckner, 1999. "Welfare Reform and the Race to the Bottom: Theory and Evidence," Southern Economic Journal, Southern Economic Association, vol. 66(2), pages 505-525, January.
  8. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  9. Jan K. Brueckner, 2004. "Fiscal Decentralization with Distortionary Taxation: Tiebout vs. Tax Competition," International Tax and Public Finance, Springer, vol. 11(2), pages 133-153, 03.
  10. Anna Brink & Katarina Nordblom & Roger Wahlberg, 2007. "Maximum fee versus child benefit: a welfare analysis of Swedish child-care fee reform," International Tax and Public Finance, Springer, vol. 14(4), pages 457-480, August.
  11. Fiva, Jon H. & Rattso, Jorn, 2006. "Welfare competition in Norway: Norms and expenditures," European Journal of Political Economy, Elsevier, vol. 22(1), pages 202-222, March.
  12. McKinnish, Terra, 2007. "Welfare-induced migration at state borders: New evidence from micro-data," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 437-450, April.
  13. Karin Edmark & Matz Dahlberg, 2004. "Is There a "Race-to-the-Bottom" in the Setting of Welfare Benefit Levels? Evidence from a Policy Intervention," Econometric Society 2004 North American Summer Meetings 473, Econometric Society.
  14. Borck, Rainald & Owings, Stephanie, 2003. "The political economy of intergovernmental grants," Regional Science and Urban Economics, Elsevier, vol. 33(2), pages 139-156, March.
  15. Gustafsson, Bjorn & Kjulin, Urban & Schwarz, Brita, 2002. " Central-Local Government Relations in Transition: The Case of Swedish Child Care," Public Choice, Springer, vol. 110(3-4), pages 305-25, March.
  16. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, vol. 81(4), pages 757-74, September.
  17. Charles Brown & Wallace E. Oates, 1985. "Assistance to the Poor in a Federal System," NBER Working Papers 1715, National Bureau of Economic Research, Inc.
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