The impact of federal and state grants on local government spending: A test of the fiscal illusion hypothesis
AbstractThis article offers an empirical test of the fiscal illusion hypothesis. It is argued that, if fiscal illusion increases with the degree of separation in taxing and spending powers, then federal unconditional grants ought to have a greater stimulatory impact on local government spending than state unconditional grants. Data for the 136 counties and cities of Virginia were examined and evidence in support of this hypothesis is provided. Federal grants were found to be the primary source of the stimulatory impact of grants. At the minimum, federal unconditional grants have twice the stimulatory effect as state unconditional grants.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number archive-11.
Length: 15 pages
Date of creation: 1990
Date of revision:
Publication status: Published in Public Finance Review July 1990 vol. 18 no. 3 313-327
Contact details of provider:
Postal: Department of Economics, Monash University, Victoria 3800, Australia
Web page: http://www.buseco.monash.edu.au/eco/
More information through EDIRC
Other versions of this item:
- Philip J. Grossman, 1990. "The Impact of Federal and State Grants on Local Government Spending: a Test of the Fiscal Illusion Hypothesis," Public Finance Review, , vol. 18(3), pages 313-327, July.
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Steven C. Deller & Craig S. Maher, 2006. "A Model of Asymmetries in the Flypaper Effect," Publius: The Journal of Federalism, Oxford University Press, vol. 36(2), pages 213-229.
- Antti Moisio, 1998. "The effects of change in grants-in-aid regime and cuts on grants on municipalities' expenditures in Finland," ERSA conference papers ersa98p296, European Regional Science Association.
- James LeSage & Matthew Dominguez, 2012. "The importance of modeling spatial spillovers in public choice analysis," Public Choice, Springer, vol. 150(3), pages 525-545, March.
- Russell Sobel & George Crowley, 2014. "Do intergovernmental grants create ratchets in state and local taxes?," Public Choice, Springer, vol. 158(1), pages 167-187, January.
- Antti Moisio, 2002. "Determinants of Expenditure Variation in Finnish Municipalities," Discussion Papers 269, Government Institute for Economic Research Finland (VATT).
- Lars Feld & Christoph Schaltegger, 2005.
"Voters AS A Hard Budget Constraint: On the Determination of Intergovernmental Grants,"
Springer, vol. 123(1), pages 147-169, April.
- Lars P. Feld & Christoph A. Schaltegger, 2004. "Voters as a hard budget constraint: On the determination of intergovernmental grants," Marburg Working Papers on Economics 200418, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
- Lars P. Feld & Christoph A. Schaltegger, 2005. "Voters as a Hard Budget Constraint: On the Determination of Intergovernmental Grants," CREMA Working Paper Series 2005-21, Center for Research in Economics, Management and the Arts (CREMA).
- Richard Scheffler & Richard Smith, 2006. "The impact of government decentralization on county health spending for the uninsured in California," International Journal of Health Care Finance and Economics, Springer, vol. 6(3), pages 237-258, September.
- Eckel, Catherine C. & Grossman, Philip J. & Johnston, Rachel M., 2005. "An experimental test of the crowding out hypothesis," Journal of Public Economics, Elsevier, vol. 89(8), pages 1543-1560, August.
- Andrew Worthington & Brian Dollery, 1998.
"The political determination of intergovernmental grants in Australia,"
Springer, vol. 94(3), pages 299-315, March.
- Worthington, Andrew C & Dollery, Brian E, 1998. " The Political Determination of Intergovernmental Grants in Australia," Public Choice, Springer, vol. 94(3-4), pages 299-315, March.
- Steven Deller & Craig Maher & Victor Lledo, 2002.
"Wisconsin Local Government, State Shared Revenues and the Illusive Flypaper Effect,"
Wisconsin-Madison Agricultural and Applied Economics Staff Papers
451, Wisconsin-Madison Agricultural and Applied Economics Department.
- Deller, Steven & Maher, Craig & Lledo, Victor, 2002. "Wisconsin Local Government, State Shared Revenues and the Illusive Flypaper Effect," Staff Paper Series 451, University of Wisconsin, Agricultural and Applied Economics.
- João Silva Moura Neto & Nelson Marconi & Paulo Eduardo Moledo Palombo & Paulo Roberto Arvate, 2006.
"Vertical Transfers And The Appropriation Of Resources By The Bureaucracy: The Case Of Brazilian State Governments,"
Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting]
136, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
- Nelson Marconi & Paulo Arvate & João Moura Neto & Paulo Palombo, 2009. "Vertical transfers and the appropriation of resources by the bureaucracy: the case of Brazilian state governments," Public Choice, Springer, vol. 141(1), pages 65-85, October.
- Brian Knight, 2000. "The flypaper effect unstuck: evidence on endogenous grants from the Federal Highway Aid Program," Finance and Economics Discussion Series 2000-49, Board of Governors of the Federal Reserve System (U.S.).
- Grossman, Philip J. & Mavros, Panayiotis & Wassmer, Robert W., 1999. "Public Sector Technical Inefficiency in Large U.S. Cities," Journal of Urban Economics, Elsevier, vol. 46(2), pages 278-299, September.
- Deller, Steven C. & Walzer, Norman, 1995. "Structural Shifts In The Treatment Of Intergovernmental Aid: The Case Of Rural Roads," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 27(02), December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Simon Angus).
If references are entirely missing, you can add them using this form.