The Income Effect of Unconditional Grants: A Reduction in the Collection Effort of Municipalities
AbstractThis paper presents research on the effect of unconditional grants on local government revenue in Chile: the receipt of transfers may engender an income effect that reduces the collection effort of municipalities. Grants are endogenous and we exploit a kink in a component of the Chilean formula for resource distribution for a panel of 340 Chilean municipalities from 1990 to 2007. We find empirical evidence that for Chilean municipalities, unconditional grants have a negative effect on local revenue. Specifically, an increase in per capita grant amount of one standard deviation is associated with a decrease of between 0.25 and 0.32 standard deviations in local per capita revenue.
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Bibliographic InfoPaper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 437.
Date of creation: 2013
Date of revision:
fiscal decentralization; intergovernmental grants; local revenue collection; regression kink design;
Find related papers by JEL classification:
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
- H7 - Public Economics - - State and Local Government; Intergovernmental Relations
- R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-09 (All new papers)
- NEP-LAM-2013-06-09 (Central & South America)
- NEP-PBE-2013-06-09 (Public Economics)
- NEP-URE-2013-06-09 (Urban & Real Estate Economics)
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