How Local are Local Governments? Heterogeneous Effects of Intergovernmental Grants
AbstractWhile the literature on how intergovernmental grants affect the budget of receiving jurisdictions is numerous, the very few studies that explicitly deal with likely endogeneity problems focus on grants targeted towards specific sectors or to specific type of recipients. The results from these studies are mixed and make clear that knowledge about grants effects is to this date still insufficient. This paper contributes by estimating causal effects on local expenditures and income tax rates of general, non-targeted grants to Finnish municipalities. This is done in a difference-in-difference model utilizing policy-induced increases in grants to three groups of remotely populated municipalities. The results show no statistically significant response in expenditures to the policy overall. However, when investigating the extent of heterogeneity I find a large, significant effect for two out of the three groups of treated municipalities but a likely null or even negative effect for the third group. The tax rate response is small and seems to be more homogeneous.
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Bibliographic InfoPaper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2009:16.
Length: 41 pages
Date of creation: 02 Dec 2009
Date of revision:
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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
Web page: http://www.nek.uu.se/
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Intergovernmental grants; difference-in-difference; heterogeneous treatment effects; flypaper effect;
Find related papers by JEL classification:
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
- H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
- R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-11 (All new papers)
- NEP-PBE-2009-12-11 (Public Economics)
- NEP-URE-2009-12-11 (Urban & Real Estate Economics)
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