An empirical study of matching grants: the 'cap on CAP'
Funding mechanisms for social expenditures are currently being reformed in many countries. While the theoretical implications of these changes are often easily identified, their empirical magnitude is not always as clear. For example, in federal systems social expenditure is often funded by matching grants, and estimates of the effect of varying matching rates on expenditures by sub-national governments vary widely. The ambiguity is due in part to inherent difficulties identifying price and income effects of federal grants given the structure of the funding mechanisms in most countries. In this paper, we examine a recent reform in Canada, in which federal grants for welfare expenditures were `capped' (converted from an open-ended to a closed-ended matching grant). Importantly, the cap applied to only three of ten provincial governments. Our empirical strategy exploits the time series-cross section variation in the funding mechanism provided by the differential application of the reform. This approach potentially surmounts some of the difficulties which have beset earlier studies. We find that the affected provinces did respond to the reform by reducing the growth rate of expenditures. They were 6 to 8 percentage points lower than predicted in the absence of the cap over the medium term.
(This abstract was borrowed from another version of this item.)
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Edward M. Gramlich & Henry J. Aaron & Michael C. Lovell, 1982. "An Econometric Examination of the New Federalism," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 13(2), pages 327-370.
- Moffitt, Robert, 1990. "Has State Redistribution Policy Grown More Conservative?," National Tax Journal, National Tax Association, vol. 43(2), pages 123-42, June.
- Sam Peltzman, 1992. "Voters as Fiscal Conservatives," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 327-361.
- Borcherding, Thomas E., 1985. "The causes of government expenditure growth: A survey of the U.S. evidence," Journal of Public Economics, Elsevier, vol. 28(3), pages 359-382, December.
- Newey, Whitney K & West, Kenneth D, 1987.
"A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix,"
Econometric Society, vol. 55(3), pages 703-708, May.
- Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
- Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
- Moffitt, Robert A., 1984. "The effects of grants-in-aid on state and local expenditures : The case of AFDC," Journal of Public Economics, Elsevier, vol. 23(3), pages 279-305, April.
- Lindert, Peter H., 1996. "What Limits Social Spending?," Explorations in Economic History, Elsevier, vol. 33(1), pages 1-34, January.
- Robert Moffitt, 1988. "Has State Redistribution Policy Grown More Conservative?," NBER Working Papers 2516, National Bureau of Economic Research, Inc.
- Steven Craig & Robert P. Inman, 1986.
"Education, Welfare and the "New" Federalism: State Budgeting in a Federalist Public Economy,"
in: Studies in State and Local Public Finance, pages 187-228
National Bureau of Economic Research, Inc.
- Steven G. Craig & Robert P. Inman, 1985. "Education, Welfare, and the "New" Federalism: State Budgeting in a Federalist Public Economy," NBER Working Papers 1562, National Bureau of Economic Research, Inc.
- Edward M. Gramlich & Deborah S. Laren, 1984. "Migration and Income Redistribution Responsibilities," Journal of Human Resources, University of Wisconsin Press, vol. 19(4), pages 489-511.
- Howard Chernick, 1998. "Fiscal Effects of Block Grants for the Needy: An Interpretation of the Evidence," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 5(2), pages 205-233, May.
- Gary S. Becker, 1983. "A Theory of Competition Among Pressure Groups for Political Influence," The Quarterly Journal of Economics, Oxford University Press, vol. 98(3), pages 371-400.
- Moffitt, Robert, 1990. "Has State Redistribution Policy Grown More Conservative?," National Tax Journal, National Tax Association, vol. 43(2), pages 123-142, June.
- James R. Hines & Richard H. Thaler, 1995. "The Flypaper Effect," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 217-226, Fall.
When requesting a correction, please mention this item's handle: RePEc:eee:pubeco:v:72:y:1999:i:2:p:269-288. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.