IDEAS home Printed from https://ideas.repec.org/a/ntj/journl/v66y2013i2p343-370.html
   My bibliography  Save this article

Local Spending, Transfers, and Costly Tax Collection

Author

Listed:
  • Fernando M. Aragon

Abstract

This paper studies the effect of relatively costly local taxation on the fiscal response of local governments to intergovernmental transfers. Using a panel dataset of Peruvian municipalities, I find robust evidence that the central government’s grants have a greater stimulatory effect in municipalities facing higher local tax collection costs. The results are consistent with the hypothesis that relatively costly local taxation may partially explain the flypaper effect.

Suggested Citation

  • Fernando M. Aragon, 2013. "Local Spending, Transfers, and Costly Tax Collection," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(2), pages 343-370, June.
    • Handle: RePEc:ntj:journl:v:66:y:2013:i:2:p:343-370
    DOI: 10.17310/ntj.2013.2.03
    as

    Download full text from publisher

    File URL: https://doi.org/10.17310/ntj.2013.2.03
    Download Restriction: Access is restricted to subscribers and members of the National Tax Association.
    File URL: https://doi.org/10.17310/ntj.2013.2.03
    Download Restriction: Access is restricted to subscribers and members of the National Tax Association.
    File URL: https://libkey.io/10.17310/ntj.2013.2.03?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

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

    Other versions of this item:

    References listed on IDEAS

    as
    1. George R. Zodrow, 2007. "The Property Tax Incidence Debate and the Mix of State and Local Finance of Local Public Expenditures," CESifo Economic Studies, CESifo Group, vol. 53(4), pages 495-521, December.
    2. van de Walle, Dominique & Mu, Ren, 2007. "Fungibility and the flypaper effect of project aid: Micro-evidence for Vietnam," Journal of Development Economics, Elsevier, vol. 84(2), pages 667-685, November.
    3. Singhal, Monica, 2008. "Special interest groups and the allocation of public funds," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 548-564, April.
    4. Hamilton, Bruce W., 1983. "The flypaper effect and other anomalies," Journal of Public Economics, Elsevier, vol. 22(3), pages 347-361, December.
    5. Blumenthal, Marsha & Slemrod, Joel, 1992. "The Compliance Cost of the U.S. Individual Income Tax System: A Second Look After Tax Reform," National Tax Journal, National Tax Association;National Tax Journal, vol. 45(2), pages 185-202, June.
    6. Blumenthal, Marsha & Slemrod, Joel, 1992. "The Compliance Cost of the U.S. Individual Income Tax System: A Second Look After Tax Reform," National Tax Journal, National Tax Association, vol. 45(2), pages 185-202, June.
    7. Joshua D. Angrist & Jörn-Steffen Pischke, 2009. "Mostly Harmless Econometrics: An Empiricist's Companion," Economics Books, Princeton University Press, edition 1, number 8769.
    8. George R. Zodrow & Peter M. Mieszkowski, 2019. "The New View of the Property Tax: A Reformulation," World Scientific Book Chapters, in: George R Zodrow (ed.), TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow, chapter 14, pages 437-459, World Scientific Publishing Co. Pte. Ltd..
    9. Dixit, Avinash & Grossman, Gene M & Helpman, Elhanan, 1997. "Common Agency and Coordination: General Theory and Application to Government Policy Making," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 752-769, August.
    10. Filimon, Radu & Romer, Thomas & Rosenthal, Howard, 1982. "Asymmetric information and agenda control : The bases of monopoly power in public spending," Journal of Public Economics, Elsevier, vol. 17(1), pages 51-70, February.
    11. George R. Zodrow, 2019. "The Property Tax as a Capital Tax: A Room with Three Views," World Scientific Book Chapters, in: George R Zodrow (ed.), TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow, chapter 15, pages 461-487, World Scientific Publishing Co. Pte. Ltd..
    12. Slemrod, Joel, 1990. "Optimal Taxation and Optimal Tax Systems," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 157-178, Winter.
    13. Wallace E. Oates & Wallace E. Oates, 2004. "An Essay on Fiscal Federalism," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 22, pages 384-414, Edward Elgar Publishing.
    14. 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.
    15. Brian Knight, 2002. "Endogenous Federal Grants and Crowd-out of State Government Spending: Theory and Evidence from the Federal Highway Aid Program," American Economic Review, American Economic Association, vol. 92(1), pages 71-92, March.
    16. Robin Boadway & Anwar Shah, 2007. "Intergovernmental Fiscal Transfers : Principles and Practice," World Bank Publications - Books, The World Bank Group, number 7171, December.
    17. Mieszkowski, Peter & Zodrow, George R, 1989. "Taxation and the Tiebout Model: The Differential Effects of Head Taxes, Taxes on Land Rents, and Property Taxes," Journal of Economic Literature, American Economic Association, vol. 27(3), pages 1098-1146, September.
    18. 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.
    19. Hamilton, Jonathan H., 1986. "The flypaper effect and the deadweight loss from taxation," Journal of Urban Economics, Elsevier, vol. 19(2), pages 148-155, March.
    20. Turnbull, Geoffrey K., 1998. "The Overspending and Flypaper Effects of Fiscal Illusion: Theory and Empirical Evidence," Journal of Urban Economics, Elsevier, vol. 44(1), pages 1-26, July.
    21. Zodrow, George R., 2001. "The Property Tax as a Capital Tax: A Room with Three Views," National Tax Journal, National Tax Association, vol. 54(n. 1), pages 139-56, March.
    22. Becker, Elizabeth, 1996. "The Illusion of Fiscal Illusion: Unsticking the Flypaper Effect," Public Choice, Springer, vol. 86(1-2), pages 85-102, January.
    23. David F. Bradford & Wallace E. Oates, 1971. "The Analysis of Revenue Sharing in a New Approach to Collective Fiscal Decisions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 85(3), pages 416-439.
    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. Bev Dahlby & Ergete Ferede, 2016. "The stimulative effects of intergovernmental grants and the marginal cost of public funds," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(1), pages 114-139, February.
    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. Alvaro Morales & Prakarsh Singh, 2016. "“Face the bullet, spare the rod?” Evidence from the aftermath of the Shining Path Insurgency," HiCN Working Papers 191 updated, Households in Conflict Network.
    5. Makarin, Alexey & Piqué, Ricardo & Aragón, Fernando, 2020. "National or sub-national parties: Does party geographic scope matter?," Journal of Development Economics, Elsevier, vol. 146(C).
    6. Alvaro Morales & Prakarsh Singh, 2014. "The Effect of Civil Conflict on Child Abuse: Evidence from Peru," HiCN Working Papers 187, Households in Conflict Network.
    7. Kaur, Amandeep & Mohanty, Ranjan Kumar & Chakraborty, Lekha & Rangan, Divy, 2021. "Ecological Fiscal Transfers and State-level Budgetary Spending in India: Analysing The Flypaper Effects in India," Working Papers 21/332, National Institute of Public Finance and Policy.
    8. Oyarzo, Mauricio & Paredes, Dusan, 2019. "Revisiting the link between resource windfalls and subnational crowding out for local mining economies in Chile," Resources Policy, Elsevier, vol. 64(C).
    9. Kaur, Amandeep & Mohanty, Ranjan & Chakraborty, Lekha S & Rangan, Divy, 2021. "Ecological Fiscal Transfers and State-level Budgetary Spending in India: Analysing The Flypaper Effects," MPRA Paper 111947, University Library of Munich, Germany.
    10. Prakarsh Singh & Alvaro Morales, 2015. "The Effect of Civil Conflict on Child Abuse: Evidence from Peru," NCID Working Papers 04/2015, Navarra Center for International Development, University of Navarra.
    11. Baja Daza, Gover & Villarroel Böhrt, Sergio & Zavaleta Castellón, David, 2012. "Diseño institucional e incentivos implicitos en la descentralización Boliviana (1994-2008) [Institutional design and implicit incentives in Bolivia's decentralization model (1994-2008)]," MPRA Paper 48598, University Library of Munich, Germany.
    12. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fernando Aragon, 2009. "The Flypaper Effect Revisited," STICERD - Economic Organisation and Public Policy Discussion Papers Series 004, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    2. Yihua Yu & Jing Wang & Xi Tian, 2016. "Identifying the Flypaper Effect in the Presence of Spatial Dependence: Evidence from Education in China's Counties," Growth and Change, Wiley Blackwell, vol. 47(1), pages 93-110, March.
    3. Leonel Muinelo-Gallo, 2021. "Testing regional intergovernmental transfers effects in Uruguay," Sobre México. Revista de Economía, Sobre México. Temas en economía, vol. 2(4), pages 6-38.
    4. Brian Knight, 2002. "Endogenous Federal Grants and Crowd-out of State Government Spending: Theory and Evidence from the Federal Highway Aid Program," American Economic Review, American Economic Association, vol. 92(1), pages 71-92, March.
    5. Heléne Lundqvist, 2015. "Granting public or private consumption? Effects of grants on local public spending and income taxes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(1), pages 41-72, February.
    6. Cristina García Nicolás & José María Cantos Cantos, 2018. "Regional Community Policy: Does Aid Received from the EU Displace Funding by Member States?," Hacienda Pública Española / Review of Public Economics, IEF, vol. 224(1), pages 87-112, March.
    7. Paulo Arvate & Enlinson Mattos, Fabiana Rocha, 2015. "Intergovernmental transfers and public spending in Brazilian municipalities," Working Papers, Department of Economics 2015_03, University of São Paulo (FEA-USP).
    8. Muinelo-Gallo, Leonel & Azar, Paola, 2018. "Testing regional intergovernmental transfers asymmetries in Uruguay," MPRA Paper 90245, University Library of Munich, Germany.
    9. Singhal, Monica, 2008. "Special interest groups and the allocation of public funds," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 548-564, April.
    10. Russell Sobel & George Crowley, 2014. "Do intergovernmental grants create ratchets in state and local taxes?," Public Choice, Springer, vol. 158(1), pages 167-187, January.
    11. Carlos A. Vegh y Guillermo Vuletin, 2016. "Unsticking the flypaper effect using distortionary taxation," Económica, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 62, pages 185-237, January-D.
    12. Evgeny N. Timushev, 2017. "Flypaper Effect: Causes and Demonstration in the Budgetary System of Russia," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 5, pages 60-70, October.
    13. Alekseev, Aleksandr & Alm, James & Sadiraj, Vjollca & Sjoquist, David L., 2021. "Experiments on the fly," Journal of Economic Behavior & Organization, Elsevier, vol. 186(C), pages 288-305.
    14. Becker, Johannes & Hopp, Daniel & Kriebel, Michael, 2020. "Mental accounting of public funds – The flypaper effect in the lab," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 321-336.
    15. Michihito Ando, 2017. "How much should we trust regression-kink-design estimates?," Empirical Economics, Springer, vol. 53(3), pages 1287-1322, November.
    16. Sebastian Langer & Artem Korzhenevych, 2019. "Equalization Transfers and the Pattern of Municipal Spending: An Investigation of the Flypaper Effect in Germany," Annals of Economics and Finance, Society for AEF, vol. 20(2), pages 737-765, November.
    17. Bev Dahlby, 2011. "The marginal cost of public funds and the flypaper effect," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(3), pages 304-321, June.
    18. George R. Zodrow, 2007. "The Property Tax Incidence Debate and the Mix of State and Local Finance of Local Public Expenditures," CESifo Economic Studies, CESifo, vol. 53(4), pages 495-521, December.
    19. 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.
    20. Thushyanthan Baskaran, 2016. "Intergovernmental Transfers, Local Fiscal Policy, and the Flypaper Effect: Evidence from a German State," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 72(1), pages 1-40, March.

    More about this item

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

    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:ntj:journl:v:66:y:2013:i:2:p:343-370. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: The University of Chicago Press (email available below). General contact details of provider: https://www.ntanet.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.