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The Size of Flypaper Effect in Decentralizing Indonesia

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  • Chalil, Tengku Munawar

Abstract

This study explores the flypaper effect in Indonesia using a spatial approach. Covering data from 2000-2014, the paper shows that grants stimulate overspending by local governments even though spatial interdependence is carefully treated. The elasticity of lump-sum grants to expenditure is stronger than the elasticity of matching grants. Further, the elasticity of lump-sum grant is greater on routine expenditure, which shows the over-dependency of local governments to lump-sum grant. The over-dependency phenomenon has not changed a lot even after a major change of lump-sum grant formulation being applied by the 2004 decentralization law package.

Suggested Citation

  • Chalil, Tengku Munawar, 2018. "The Size of Flypaper Effect in Decentralizing Indonesia," MPRA Paper 88037, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:88037
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    File URL: https://mpra.ub.uni-muenchen.de/98358/1/MPRA_paper_88037.pdf
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    References listed on IDEAS

    as
    1. Edward M. Gramlich & Harvy Galper, 1973. "State and Local Fiscal Behavior and Federal Grant Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(1), pages 15-66.
    2. Elena Gennari & Giovanna Messina, 2014. "How sticky are local expenditures in Italy? Assessing the relevance of the flypaper effect through municipal data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(2), pages 324-344, April.
    3. Strumpf, Koleman S., 1998. "A predictive index for the flypaper effect," Journal of Public Economics, Elsevier, vol. 69(3), pages 389-412, September.
    4. Kakamu, Kazuhiko & Yunoue, Hideo & Kuramoto, Takashi, 2014. "Spatial patterns of flypaper effects for local expenditure by policy objective in Japan: A Bayesian approach," Economic Modelling, Elsevier, vol. 37(C), pages 500-506.
    5. 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.
    6. Bailey, Stephen J & Connolly, Stephen, 1998. "The Flypaper Effect: Identifying Areas for Further Research," Public Choice, Springer, vol. 95(3-4), pages 335-361, June.
    7. Worthington, Andrew C & Dollery, Brian E, 1999. "Fiscal Illusion and the Australian Local Government Grants Process: How Sticky Is the Flypaper Effect?," Public Choice, Springer, vol. 99(1-2), pages 1-13, April.
    8. Robert P. Inman, 2008. "The Flypaper Effect," NBER Working Papers 14579, National Bureau of Economic Research, Inc.
    9. Wyckoff, Paul Gary, 1990. "The Simple Analytics of Slack-Maximizing Bureaucracy," Public Choice, Springer, vol. 67(1), pages 35-47, October.
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    Cited by:

    1. Tengku Munawar Chalil, 2020. "Fiscal competitions among Indonesian municipalities: a spatial econometric analysis," Asia-Pacific Journal of Regional Science, Springer, vol. 4(1), pages 241-260, February.

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    More about this item

    Keywords

    flypaper effect; intergovernmental transfer; local government expenditure;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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