The Flypaper Effect
AbstractThe flypaper effect results when a dollar of exogenous grants-in-aid leads to significantly greater public spending than an equivalent dollar of citizen income: Money sticks where it hits. Viewing governments as agents for a representative citizen voter, this empirical result is an anomaly. Four alternative explanations have been offered. First, it's a data problem; matching grants have been mis-classified as exogenous aid. Second, it's an econometric problem; exogenous aid is correlated with omitted variables leading to a downward bias in estimates of income's effects and an upward bias in estimates of aid's effects. Third, it's a specification problem: the representative citizen either fails to observe lump-sum aid, or sees aid but mis-perceives its impact as an average price effect, or finally, sees and understands aid's budgetary effects but allocates "public" and "private" monies through separate "mental accounts." The empirical evidence suggests none of these explanations is sufficient. A fourth explanation seems most promising: It's politics. Rather than an anomaly, the flypaper effect is best seen as an outcome of political institutions and the associated incentives of elected officials.
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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14579.
Date of creation: Dec 2008
Date of revision:
Note: PE POL
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Find related papers by JEL classification:
- 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
- P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-03 (All new papers)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Minoiu, Camelia & Reddy, Sanjay G., 2010.
"Development aid and economic growth: A positive long-run relation,"
The Quarterly Review of Economics and Finance,
Elsevier, vol. 50(1), pages 27-39, February.
- Sanjay G. Reddy & Camelia Minoiu, 2006. "Development Aid and Economic Growth: A Positive Long-Run Relation," Working Papers 29, United Nations, Department of Economics and Social Affairs.
- Sanjay Reddy & Camelia Minoiu, 2009. "Development Aid and Economic Growth: A Positive Long-Run Relation," IMF Working Papers 09/118, International Monetary Fund.
- Fernando Antonio Slaibe Postali & Fabiana Fontes Rocha, 2011. "Resource windfalls,fiscal effort and public spending: evidence from Brazilianmunicipalities," Anais do XXXVII Encontro Nacional de Economia [Proceedings of the 37th Brazilian Economics Meeting] 64, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
- Facchini, Francois, 2014. "The determinants of public spending: a survey in a methodological perspective," MPRA Paper 53006, University Library of Munich, Germany.
- Ando, Michihito, 2013. "How Much Should We Trust Regression-Kink-Design Estimates?," Working Paper Series 2013:22, Uppsala University, Department of Economics.
- Luc Eyraud & Marialuz Moreno Badia, 2013. "Too Small to Fail? Subnational Spending Pressures in Europe," IMF Working Papers 13/46, International Monetary Fund.
- Sylvain Leduc & Daniel Wilson, 2013. "Are state governments roadblocks to federal stimulus? Evidence from highway grants in the 2009 Recovery Act," Working Paper Series 2013-16, Federal Reserve Bank of San Francisco.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.