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How sticky are local expenditures in Italy? Assessing the relevance of the �flypaper effect� through municipal data

Author

Listed:
  • Elena Gennari

    () (Bank of Italy)

  • Giovanna Messina

    () (Bank of Italy)

Abstract

An extensive literature analyses the impact of upper-tier transfers on the spending behaviour of lower level governments. According to the median voter framework, a transfer from the centre should act as a lump sum grant to residents and thus be spent by jurisdictions in the same proportion as residents are willing to spend their own money on public goods and services. But the actual local expenditure response to central government transfers is stronger than predicted by the theory, giving rise to the �flypaper effect�. Using the database on municipal accounts, and various other information sources, this work aims at assessing the size of the effect for Italian municipalities and the symmetry in the local expenditure response to central government transfers. Our dataset enables us also to investigate the role of some political factors. We find a sizeable effect and a remarkable asymmetric response of municipal expenditures to central government transfers as well as a significant role for political variables.

Suggested Citation

  • Elena Gennari & Giovanna Messina, 2012. "How sticky are local expenditures in Italy? Assessing the relevance of the �flypaper effect� through municipal data," Temi di discussione (Economic working papers) 844, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_844_12
    as

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    File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2012/2012-0844/en_tema_844.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    flypaper effect; intergovernmental transfers; fiscal federalism;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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