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Stimulating Local Public Employment: Do General Grants Work?

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  • Lundqvist, Heléne

    ()
    (Uppsala University)

  • Dahlberg, Matz

    ()
    (Uppsala University)

  • Mörk, Eva

    ()
    (Uppsala University)

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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5177.

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Length: 37 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:iza:izadps:dp5177

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Keywords: fiscal federalism; intergovernmental grants; public employment; regression kink design; instrumental variables;

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  1. Simonsen, Marianne & Skipper, Lars & Skipper, Niels, 2010. "Price Sensitivity of Demand for Prescription Drugs: Exploiting a Regression Kink Design," Working Papers 10-1, University of Aarhus, Aarhus School of Business, Department of Economics.
  2. Matz Dahlberg & Eva Mörk & Jørn Rattsø & Hanna Ågren, 2006. "Using a discontinuous grant rule to identify the effect of grants on local taxes and spending," Working Papers, University of Kentucky, Institute for Federalism and Intergovernmental Relations 2006-12, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  3. 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.
  4. 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.
  5. 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.
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