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Voters as a Hard Budget Constraint: On the Determination of Intergovernmental Grants

  • Lars P. Feld
  • Christoph A. Schaltegger

Recent empirical literature has shown that the determination of intergovernmental grants is highly influenced by the political bargaining power of the recipient states. In these models federal politicians are assumed to buy the support of state voters, state politicians and state interest groups by providing grants. In this paper we provide evidence that the fiscal referen-dum reduces the reliance of states on matching grants received from the central government and thus the possibility of state interest groups and state bureaucrats to obtain more grants. If referendums are available, voters serve as a hard budget constraint.

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Paper provided by Center for Research in Economics, Management and the Arts (CREMA) in its series CREMA Working Paper Series with number 2005-21.

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Date of creation: Jun 2005
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Handle: RePEc:cra:wpaper:2005-21
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  1. Feld, Lars P. & Kirchgassner, Gebhard, 2000. "Direct democracy, political culture, and the outcome of economic policy: a report on the Swiss experience," European Journal of Political Economy, Elsevier, vol. 16(2), pages 287-306, June.
  2. James R. Hines & Richard H. Thaler, 1995. "The Flypaper Effect," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 217-226, Fall.
  3. Philip J. Grossman, 1987. "A Political Theory of Inter-Governmental Grants," School of Economics Working Papers 1987-06, University of Adelaide, School of Economics.
  4. Philip J. Grossman, 1990. "The Impact of Federal and State Grants on Local Government Spending: a Test of the Fiscal Illusion Hypothesis," Public Finance Review, , vol. 18(3), pages 313-327, July.
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  10. Weingast, Barry R & Shepsle, Kenneth A & Johnsen, Christopher, 1981. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 642-64, August.
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  12. Wyckoff, Paul Gary, 1991. "The elusive flypaper effect," Journal of Urban Economics, Elsevier, vol. 30(3), pages 310-328, November.
  13. Friedrich Schneider & Hans Pitlik & Harald Strotmann & G�nther Schmid, 2001. "On the politicization of intergovernmental fiscal relations in Germany after unification," Economics working papers 2001-05, Department of Economics, Johannes Kepler University Linz, Austria.
  14. Bohnet, Iris & Frey, Bruno S, 1994. "Direct-Democratic Rules: The Role of Discussion," Kyklos, Wiley Blackwell, vol. 47(3), pages 341-54.
  15. Feld, Lars P. & Matsusaka, John G., 2003. "Budget referendums and government spending: evidence from Swiss cantons," Journal of Public Economics, Elsevier, vol. 87(12), pages 2703-2724, December.
  16. Matsusaka, John G, 1995. "Fiscal Effects of the Voter Initiative: Evidence from the Last 30 Years," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 587-623, June.
  17. Heyndels, Bruno & Smolders, Carine, 1994. " Fiscal Illusion at the Local Level: Empirical Evidence for the Flemish Municipalities," Public Choice, Springer, vol. 80(3-4), pages 325-38, September.
  18. Lars P Feld & Gebhard Kirchgässner, 2001. "The political economy of direct legislation: direct democracy and local decision-making," Economic Policy, CEPR;CES;MSH, vol. 16(33), pages 329-367, October.
  19. Winer, Stanley L, 1983. "Some Evidence on the Effect of the Separation of Spending and Taxing Decisions," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 126-40, February.
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