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Stimulating Local Public Employment: Do General Grants Work?

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  • Lundqvist, Heléne

    ()
    (Uppsala Center for Fiscal Studies)

  • Dahlberg, Matz

    ()
    (Uppsala Center for Fiscal Studies)

  • Mörk, Eva

    ()
    (Uppsala Center for Fiscal Studies)

Abstract

The effectiveness of public funds in increasing public employment has long been a question on public and labor economists’ minds. In most federal countries local governments employ large fractions of the working population, meaning that a tool for stimulating local public employment can substantially affect the overall unemployment level. This paper asks whether general grants to lower-level governments have the potential of doing so. Applying the regression kink design to the Swedish grant system, we are able to estimate causal effects of intergovernmental grants on personnel in different local government sectors. Our robust conclusion is that personnel in the central administration increased substantially after a marginal increase in grants, but that such an effect was lacking both for total personnel and personnel in child care, schools, elderly care, social welfare and in technical services. We suggest several potential reasons for these results, such as heterogeneous treatment effects and bureaucratic influence in the local decision-making process.

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Bibliographic Info

Paper provided by Uppsala University, Department of Economics in its series Working Paper Series, Center for Fiscal Studies with number 2010:9.

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Length: 35 pages
Date of creation: 02 Sep 2010
Date of revision:
Publication status: Published as Lundqvist, Heléne, Matz Dahlberg and Eva Mörk, 'Stimulating Local Public Employment: Do General Grants Work?' in American Economic Journal: Economic Policy , 2014, pages 167-192.
Handle: RePEc:hhs:uufswp:2010_009

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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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Web page: http://www.nek.uu.se/
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Keywords: Fiscal federalism; intergovernmental grants; public employment; regression kink design; instrumental variables;

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  1. Dahlberg, Matz & Mörk, Eva & Rattsø, Jørn & Ågren, Hanna, 2008. "Using a discontinuous grant rule to identify the effect of grants on local taxes and spending," Journal of Public Economics, Elsevier, Elsevier, vol. 92(12), pages 2320-2335, December.
  2. Bergström, Pål & Dahlberg, Matz & Johansson, Eva, 1998. "Municipal labour demand," Working Paper Series, IFAU - Institute for Evaluation of Labour Market and Education Policy 1998:1, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  3. Dewatripont, Mathias & Jewitt, Ian & Tirole, Jean, 1999. "The Economics of Career Concerns, Part II: Application to Missions and Accountability of Government Agencies," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 66(1), pages 199-217, January.
  4. Marianne Simonsen & Lars Skipper & Niels Skipper, 2010. "Price Sensitivity of Demand for Prescription Drugs: Exploiting a Regression Kink Design," Economics Working Papers, School of Economics and Management, University of Aarhus 2010-03, School of Economics and Management, University of Aarhus.
  5. Hahn, Jinyong & Todd, Petra & Van der Klaauw, Wilbert, 2001. "Identification and Estimation of Treatment Effects with a Regression-Discontinuity Design," Econometrica, Econometric Society, Econometric Society, vol. 69(1), pages 201-09, January.
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