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Unconditional federal transfers and state government spending: The flypaper effect in Nigeria and South Africa

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  • Abdurrahman Isik

  • Peter D. Golit

  • Paul Terhemba Iorember

Abstract

The flypaper effect is undoubtedly among the most interesting concepts in subnational government spending behavior. This study is the first attempt to provide empirical evidence on the existence of the flypaper effect in the two largest economies in Sub-Saharan Africa: Nigeria and South Africa. Using the two-step system generalized method of moment’s estimator, our results show that the flypaper effect exists for both state and provincial governments in Nigeria and South Africa. Provincial governments in South Africa are found to be more responsive to positive changes in unconditional federal transfers than state governments in Nigeria. We therefore recommend sen­sitization on the receipt and disbursement of unconditional federal transfers. This will help reduce the illusion or information asymmetry about the use of unconditional federal transfers.

Suggested Citation

  • Abdurrahman Isik & Peter D. Golit & Paul Terhemba Iorember, 2023. "Unconditional federal transfers and state government spending: The flypaper effect in Nigeria and South Africa," Modern Finance, Modern Finance Institute, vol. 1(1), pages 99-115.
    • Handle: RePEc:bdy:modfin:v:1:y:2023:i:1:p:99-115:id:46
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    References listed on IDEAS

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    1. Allers, Maarten A. & Vermeulen, Wouter, 2016. "Capitalization of equalizing grants and the flypaper effect," Regional Science and Urban Economics, Elsevier, vol. 58(C), pages 115-129.
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