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Spatial patterns of flypaper effects for local expenditure by policy objective in Japan: A Bayesian approach

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  • Kakamu, Kazuhiko
  • Yunoue, Hideo
  • Kuramoto, Takashi

Abstract

The empirical work on local public finance has found that the marginal effect of lump-sum grants on expenditure is larger than that of income, thereby providing evidence of the “flypaper effect”. However, most existing studies only employ single equation models to test the flypaper effect. In this paper, we specify a seemingly unrelated regression (SUR) model to examine the flypaper effect in Japan, primarily because other categories of expenditure influence the expenditure on particular policy objectives. We also include spatial interaction in our estimation model and employ a Bayesian approach in estimating our model. Our results show that SUR with a spatial error model is better for this purpose than several other specifications. Using this approach, we observe evidence of the flypaper effect in land development, police, education, and debt expenditure, and spatial interaction in sanitation, police, education, and disaster recovery expenditure.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:ecmode:v:37:y:2014:i:c:p:500-506
    DOI: 10.1016/j.econmod.2013.11.028
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Hirota, Haruaki & Yunoue, Hideo, 2017. "The effects of the new fiscal rule and creative accounting: Empirical evidence from Japanese municipalities," MPRA Paper 79812, University Library of Munich, Germany.
    2. Manuel E. Lago & Santiago Lago-Peñas & Jorge Martinez-Vazquez, 2022. "On the effects of intergovernmental grants: a survey," Working Papers. Collection A: Public economics, governance and decentralization 2204, Universidade de Vigo, GEN - Governance and Economics research Network.
    3. Vicente Rios & Miriam Hortas-Rico & Pedro Pascual, 2022. "What shapes the flypaper effect? The role of the political environment in the budget process," Local Government Studies, Taylor & Francis Journals, vol. 48(5), pages 793-820, September.
    4. Hirota, Haruaki & Yunoue, Hideo, 2015. "地方財政健全化指標における相互依存関係の実証分析 [Interdependency of Financial Indexes in the Law Relating to the Financial Soundness of Local Governments: Empirical evidence of Japanese prefectural data]," MPRA Paper 61223, University Library of Munich, Germany.
    5. Chalil, Tengku Munawar, 2018. "The Size of Flypaper Effect in Decentralizing Indonesia," MPRA Paper 88037, University Library of Munich, Germany.
    6. Yarlina Yacoub, 2019. "Flypaper Effect in Indonesia: The Case of Kalimantan," GATR Journals jfbr164, Global Academy of Training and Research (GATR) Enterprise.
    7. Lela Nurlaela & Heri Ispriyadi & Dhika Habibi Zakaira, 2022. "The flypaper effect phenomenon of intergovernmental transfers during the Covid-19:Evidence from Indonesia," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 40(2), pages 353-373.
    8. Sangsoo Lim & Sanghoon Lee & Pilhyun Kim, 2017. "Asymmetry in the fly-paper effect of the national subsidy in Korea," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 22(4), pages 560-574, October.

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    More about this item

    Keywords

    Flypaper effect; Local expenditure by policy objective; Markov chain Monte Carlo (MCMC); Seemingly unrelated regression (SUR); Spatial models;
    All these keywords.

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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