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

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  • Lars P. Feld
  • Christoph A. Schaltegger

Abstract

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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  • Lars P. Feld & Christoph A. Schaltegger, 2005. "Voters as a Hard Budget Constraint: On the Determination of Intergovernmental Grants," CREMA Working Paper Series 2005-21, Center for Research in Economics, Management and the Arts (CREMA).
    • Handle: RePEc:cra:wpaper:2005-21
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    References listed on IDEAS

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    Cited by:

    1. Thushyanthan Baskaran & Zohal Hessami, 2017. "Political alignment and intergovernmental transfers in parliamentary systems: evidence from Germany," Public Choice, Springer, vol. 171(1), pages 75-98, April.
    2. Cruz, Tassia & Silva, Talita, 2020. "Minimum Spending in Education and the Flypaper Effect," Economics of Education Review, Elsevier, vol. 77(C).
    3. KaiA. Konrad & SebastianG. Kessing, 2008. "Time Consistency and Bureaucratic Budget Competition," Economic Journal, Royal Economic Society, vol. 118(525), pages 1-15, January.
    4. Dalle Nogare, Chiara & Kauder, Björn, 2017. "Term limits for mayors and intergovernmental grants: Evidence from Italian cities," Regional Science and Urban Economics, Elsevier, vol. 64(C), pages 1-11.
    5. Phuong Nguyen-Hoang, 2012. "Fiscal effects of budget referendums: evidence from New York school districts," Public Choice, Springer, vol. 150(1), pages 77-95, January.
    6. John G. Matsusaka, 2018. "Public policy and the initiative and referendum: a survey with some new evidence," Public Choice, Springer, vol. 174(1), pages 107-143, January.
    7. Linda Veiga & Maria Pinho, 2007. "The political economy of intergovernmental grants: Evidence from a maturing democracy," Public Choice, Springer, vol. 133(3), pages 457-477, December.
    8. Lars P. Feld & Gebhard Kirchgässner, 2005. "Sustainable Fiscal Policy in a Federal System: Switzerland as an Example," Palgrave Macmillan Books, in: Hanspeter Kriesi & Peter Farago & Martin Kohli & Milad Zarin-Nejadan (ed.), Contemporary Switzerland, chapter 12, pages 281-296, Palgrave Macmillan.
    9. Kauder, Björn & Björn, Kauder & Niklas, Potrafke & Markus, Reischmann, 2016. "Do politicians gratify core supporters? Evidence from a discretionary grant program," VfS Annual Conference 2016 (Augsburg): Demographic Change 145509, Verein für Socialpolitik / German Economic Association.
    10. Sorens, Jason, 2016. "Vertical Fiscal Gaps and Economic Performance: A Theoretical Review and an Empirical Meta-analysis," Working Papers 06856, George Mason University, Mercatus Center.
    11. Fabio FIORILLO, 2011. "A model on interests representation and;accountability in small local governments," Working Papers 356, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    12. Lars P. Feld & Gebhard Kirchgassner, 2006. "On the Effectiveness of Debt Brakes: The Swiss Experience," CREMA Working Paper Series 2006-21, Center for Research in Economics, Management and the Arts (CREMA).
    13. Yarlina Yacoub, 2019. "Flypaper Effect in Indonesia: The Case of Kalimantan," GATR Journals jfbr164, Global Academy of Training and Research (GATR) Enterprise.
    14. Padovano, Fabio, 2012. "The drivers of interregional policy choices: Evidence from Italy," European Journal of Political Economy, Elsevier, vol. 28(3), pages 324-340.
    15. Kauder, Björn & Potrafke, Niklas & Reischmann, Markus, 2016. "Do politicians reward core supporters? Evidence from a discretionary grant program," European Journal of Political Economy, Elsevier, vol. 45(C), pages 39-56.
    16. Jussila Hammes , Johanna & Mandell , Svante, 2016. "Districts’ co-financing of the central government," Working papers in Transport Economics 2016:12, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
    17. Markus Reischmann, 2016. "Empirical Studies on Public Debt and Fiscal Transfers," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 63.
    18. Peter K. Hazlett & Chandler S. Reilly, 2023. "Bureaucratic rent creation: the case of price discrimination in the market for postsecondary education," Constitutional Political Economy, Springer, vol. 34(2), pages 226-256, June.
    19. Hessami, Zohal, 2014. "Electoral Rules for Mayors and Incentives to Pork-Barrel: Quasi-Experimental Evidence from German Municipalities," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100432, Verein für Socialpolitik / German Economic Association.
    20. Andres Felipe Muñoz & Gustavo Axel Radics & Claudia Bone, 2016. "Subnational Fiscal Disparities and Intergovermental Transfers in LAC," Hacienda Pública Española / Review of Public Economics, IEF, vol. 219(4), pages 35-66, December.
    21. Elvina Merkaj & Riccardo Lucchetti & Fabio Fiorillo, 2017. "Winning Competitive Grants For Regional Development in Albania: The Role of Local Leaders," Working Papers 422, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    22. Lars Feld, 2005. "The European constitution project from the perspective of constitutional political economy," Public Choice, Springer, vol. 122(3), pages 417-448, March.
    23. Paulo Roberto Arvate & Marcos Felipe Mendes Lopes, 2007. "Institutional Changes, Incentive Schemes And The Decision To Undertake Fiscal Adjustments," Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting] 010, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].

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    More about this item

    Keywords

    Budget Referendums; Intergovernmental Grants; Interest Group Influence;
    All these keywords.

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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