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A Model of Asymmetries in the Flypaper Effect

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  • Steven C. Deller
  • Craig S. Maher

Abstract

In this applied research study we examine the changing fiscal relationship between state and local governments. Our research question is simple: Do local governments treat state aid during periods of stability and instability in a systematic manner? Using data on Wisconsin's unconditional shared revenues program from 1990 to 2000, we find evidence of a flypaper effect and that the relationship tends to be asymmetrical. The manner in which local governments treat intergovernmental aid is different between periods of increases and decreases in aid. Specifically, using a model that allows for the identification of structure shifts we find evidence of fiscal replacement. In addition, we find that changes in aid impact types of spending differently. When aid is reduced, policymakers appear to be less inclined to cut police and fire services than they are to cut services such as parks and recreation. Copyright 2006, Oxford University Press.

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  • Steven C. Deller & Craig S. Maher, 2006. "A Model of Asymmetries in the Flypaper Effect," Publius: The Journal of Federalism, CSF Associates Inc., vol. 36(2), pages 213-229.
    • Handle: RePEc:oup:publus:v:36:y:2006:i:2:p:213-229
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    2. Raffaella Santolini, 2017. "Electoral Rules And Public Spending Composition: The Case Of Italian Regions," Contemporary Economic Policy, Western Economic Association International, vol. 35(3), pages 551-577, July.
    3. 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.
    4. José Marcelo Torres Ortega & Jorge Mario Ortega De la Rosa, 2022. "Flypaper Effect: The Colombian Municipalities Case for 2000-2017," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 97, pages 79-111, July-Dece.
    5. Luigi Marattin & Tommaso Nannicini & Francesco Porcelli, 2022. "Revenue vs expenditure based fiscal consolidation: the pass-through from federal cuts to local taxes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(4), pages 834-872, August.
    6. Torres Ortega, José Marcelo & Ortega De La Rosa, Jorge Mario, 2022. "Efecto flypaper: estudio de caso para los municipios colombianos, periodo 2000-2017," Revista Lecturas de Economía, Universidad de Antioquia, CIE, issue No. 97, pages 79-111, May.
    7. Laura Sour, 2013. "The flypaper effect in Mexican local government," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 28(1), pages 165-186.
    8. 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.
    9. Shani, Ron & Reingewertz, Yaniv & Vigoda-Gadot, Eran, 2023. "Intergovernmental grants and local public finance: An empirical examination in Israel," European Journal of Political Economy, Elsevier, vol. 79(C).
    10. Jorge Puig & Alberto Porto, 2022. "On the fiscal behavior of subnational governments. A long-term vision for Argentina," Asociación Argentina de Economía Política: Working Papers 4588, Asociación Argentina de Economía Política.
    11. Phuong Nguyen-Hoang & Yilin Hou, 2014. "Local Fiscal Responses to Procyclical Changes in State Aid," Publius: The Journal of Federalism, CSF Associates Inc., vol. 44(4), pages 587-608.
    12. Agustín León-Moreta, 2019. "Functional responsibilities of municipal government: Metropolitan disparities and instruments of intergovernmental management," Urban Studies, Urban Studies Journal Limited, vol. 56(12), pages 2585-2607, September.
    13. Luiz de Mello, 2007. "Local Government Finances: The Link between Intergovernmental Transfers and Net Worth," OECD Economics Department Working Papers 581, OECD Publishing.
    14. 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.

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