IDEAS home Printed from https://ideas.repec.org/a/kap/decono/v162y2014i2p147-166.html
   My bibliography  Save this article

Welfare Financing: Grant Allocation and Efficiency

Author

Listed:
  • Linda Toolsema

    ()

  • Maarten Allers

Abstract

Welfare is often administered locally, but financed through grants from the central government. This raises the question how the central government can prevent local governments from spending more than necessary. We analyze block grants used in The Netherlands, which depend on exogenous spending need determinants and are estimated from previous period welfare spending. We show that, although these grants give rise to perverse incentives by reducing the marginal costs of welfare spending, they are likely to be more efficient than a matching grant, and more equitable than a fixed block grant. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Linda Toolsema & Maarten Allers, 2014. "Welfare Financing: Grant Allocation and Efficiency," De Economist, Springer, vol. 162(2), pages 147-166, June.
  • Handle: RePEc:kap:decono:v:162:y:2014:i:2:p:147-166
    DOI: 10.1007/s10645-014-9228-6
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10645-014-9228-6
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bernd Huber & Marco Runkel, 2006. "Optimal Design of Intergovernmental Grants Under Asymmetric Information," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 13(1), pages 25-41, January.
    2. Timothy Goodspeed, 2002. "Bailouts in a Federation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(4), pages 409-421, August.
    3. Horst Raff & John Wilson, 1997. "Income Redistribution with Well-Informed Local Governments," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(4), pages 407-427, November.
    4. Robin W. Boadway & Frank R. Flatters, 1982. "Efficiency and Equalization Payments in a Federal System of Government: A Synthesis and Extension of Recent Results," Canadian Journal of Economics, Canadian Economics Association, vol. 15(4), pages 613-633, November.
    5. Breuillé, Marie-Laure & Madiès, Thierry & Taugourdeau, Emmanuelle, 2010. "Gross versus net equalization scheme in a federation with decentralized leadership," Journal of Urban Economics, Elsevier, vol. 68(2), pages 205-214, September.
    6. Riemer P. Faber & Pierre Koning, 2017. "Why not fully spend a conditional block grant?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(1), pages 60-95, February.
    7. William Duncombe & John Yinger, 1997. "Why is it so hard to help central city schools?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 16(1), pages 85-113.
    8. 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.
    9. James M. Buchanan, 1952. "Federal Grants and Resource Allocation: A Reply," Journal of Political Economy, University of Chicago Press, vol. 60, pages 536-536.
    10. Breuille, Marie-Laure & Gary-Bobo, Robert J., 2007. "Sharing budgetary austerity under free mobility and asymmetric information: An optimal regulation approach to fiscal federalism," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 1177-1196, June.
    11. Alan Duncan & Peter Smith, 1995. "Modelling local government budgetary choices under expenditure limitation," Fiscal Studies, Institute for Fiscal Studies, vol. 16(4), pages 95-110, November.
    12. repec:dgr:rugsom:12004-eef is not listed on IDEAS
    13. Cornes, Richard C. & Silva, Emilson C. D., 2002. "Local public goods, inter-regional transfers and private information," European Economic Review, Elsevier, vol. 46(2), pages 329-356, February.
    14. Buchanan, James M. & Goetz, Charles J., 1972. "Efficiency limits of fiscal mobility: An assessment of the tiebout model," Journal of Public Economics, Elsevier, vol. 1(1), pages 25-43, April.
    15. Le Grand, Julian, 1975. "Fiscal Equity and Central Government Grants to Local Authorities," Economic Journal, Royal Economic Society, vol. 85(339), pages 531-547, September.
    16. Akai, Nobuo & Sato, Motohiro, 2008. "Too big or too small? A synthetic view of the commitment problem of interregional transfers," Journal of Urban Economics, Elsevier, vol. 64(3), pages 551-559, November.
    17. James M. Buchanan, 1952. "Federal Grants and Resource Allocation," Journal of Political Economy, University of Chicago Press, vol. 60, pages 208-208.
    18. repec:dgr:rugsom:12004-eef_def is not listed on IDEAS
    19. Rebecca M. Blank, 2002. "Evaluating Welfare Reform in the United States," Journal of Economic Literature, American Economic Association, vol. 40(4), pages 1105-1166, December.
    20. Dahlberg, Matz & Edmark, Karin, 2008. "Is there a "race-to-the-bottom" in the setting of welfare benefit levels? Evidence from a policy intervention," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1193-1209, June.
    21. repec:dgr:rugsom:12004-eefdefnieuw is not listed on IDEAS
    22. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
    23. David C. Ribar & Mark O. Wilhelm, 1999. "The Demand for Welfare Generosity," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 96-108, February.
    24. Allers, Maarten A., 2012. "Yardstick competition, fiscal disparities, and equalization," Economics Letters, Elsevier, vol. 117(1), pages 4-6.
    25. Bird, Richard M. & Smart, Michael, 2002. "Intergovernmental Fiscal Transfers: International Lessons for Developing Countries," World Development, Elsevier, vol. 30(6), pages 899-912, June.
    26. Bucovetsky, Sam, 1998. "Federalism, equalization and risk aversion," Journal of Public Economics, Elsevier, vol. 67(3), pages 301-328, March.
    27. Katherine Baicker, 2005. "Extensive or Intensive Generosity? The Price and Income Effects of Federal Grants," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 371-384, May.
    28. Bradbury, Katharine & Zhao, Bo, 2009. "Measuring Non–School Fiscal Disparities Among Municipalities," National Tax Journal, National Tax Association;National Tax Journal, vol. 62(1), pages 25-56, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vermeulen, W. & Allers, Maarten, 2014. "Fiscal equalization, capitalization and the flypaper effect," Research Report 14023-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    2. Riemer P. Faber & Pierre Koning, 2017. "Why not fully spend a conditional block grant?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(1), pages 60-95, February.
    3. 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.
    4. repec:dgr:rugsom:14023-eef is not listed on IDEAS
    5. Lucy Kok & Caren Tempelman & Pierre Koning & Lennart Kroon & Caroline Berden, 2017. "Do Incentives for Municipalities Reduce the Welfare Caseload? Evaluation of a Welfare Reform in the Netherlands," De Economist, Springer, vol. 165(1), pages 23-42, March.

    More about this item

    Keywords

    Block grant; Efficiency; Equity; Grant allocation; Welfare financing; H53; H75; H77; I38;

    JEL classification:

    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:decono:v:162:y:2014:i:2:p:147-166. 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: (Sonal Shukla) or (Rebekah McClure). General contact details of provider: http://www.springer.com .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.