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Wisconsin Local Government, State Shared Revenues and the Illusive Flypaper Effect

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  • Deller, Steven

    (U of Wisconsin, Madison/Extension)

  • Maher, Craig

    (U of Wisconsin, Oshkosh)

  • Lledo, Victor

    (U of Wisconsin)

Abstract

This study focuses on the impacts state shared revenues has on local government finances. Specifically we examine what is referred to in the academic literature as the "flypaper effect." Using a simple model of local fiscal behavior Bradford and Oates (1971a, 1971b) predict that aids to local governments is the equivalent to cash transfers to local constituents. Thus aids to local governments should have the same impact on local government spending as does increases in local personal income. Empirical studies, however, have found that aids to local governments has a much greater simulative affect on local spending than does a comparable increase in the income of local constituents. Private income is disproportionately spend on private consumption while aids, income received by local governments, is primarily spent on public services.

Suggested Citation

  • Deller, Steven & Maher, Craig & Lledo, Victor, 2002. "Wisconsin Local Government, State Shared Revenues and the Illusive Flypaper Effect," Staff Paper Series 451, University of Wisconsin, Agricultural and Applied Economics.
  • Handle: RePEc:ecl:wisagr:451
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    References listed on IDEAS

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    1. Edward M. Gramlich & Harvy Galper, 1973. "State and Local Fiscal Behavior and Federal Grant Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(1), pages 15-66.
    2. Romer, Thomas & Rosenthal, Howard, 1982. "Median Voters or Budget Maximizers: Evidence from School Expenditure Referenda," Economic Inquiry, Western Economic Association International, vol. 20(4), pages 556-578, October.
    3. Hamilton, Bruce W., 1983. "The flypaper effect and other anomalies," Journal of Public Economics, Elsevier, vol. 22(3), pages 347-361, December.
    4. Bahl, Roy W. & Sjoquist, David L., 1990. "The State and Local Fiscal Outlook: What Have We Learned and Where Are We Headed?," National Tax Journal, National Tax Association, vol. 43(3), pages 321-42, September.
    5. Romer, Thomas & Rosenthal, Howard, 1979. "The elusive median voter," Journal of Public Economics, Elsevier, vol. 12(2), pages 143-170, October.
    6. Niskanen, William A, 1975. "Bureaucrats and Politicians," Journal of Law and Economics, University of Chicago Press, vol. 18(3), pages 617-643, December.
    7. 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.
    8. O'Brien, J. Patrick & Shieh, Yeung-Nan, 1990. "Utility Functions and Fiscal Illusion From Grants," National Tax Journal, National Tax Association;National Tax Journal, vol. 43(2), pages 201-205, June.
    9. 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, Oxford University Press, vol. 85(3), pages 416-439.
    10. Rubinfeld, Daniel L., 1987. "The economics of the local public sector," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 11, pages 571-645 Elsevier.
    11. Bahl, Roy W. & Sjoquist, David L., 1990. "The State and Local Fiscal Outlook: What Have We Learned and Where Are We Headed?," National Tax Journal, National Tax Association;National Tax Journal, vol. 43(3), pages 321-342, September.
    12. Deller, Steven C. & Walzer, Norman, 1995. "Structural Shifts in the Treatment of Intergovernmental Aid: The Case of Rural Roads," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 27(02), pages 522-535, December.
    13. 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.
    14. 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.
    15. O'Brien, J. Patrick & Shieh, Yeung-Nan, 1990. "Utility Functions and Fiscal Illusion from Grants," National Tax Journal, National Tax Association, vol. 43(2), pages 201-05, June.
    16. Grossman, Philip J., 1989. "Intergovernmental Grants and Grantor Government Own-Purpose Expenditures," National Tax Journal, National Tax Association;National Tax Journal, vol. 42(4), pages 487-494, December.
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    Cited by:

    1. Steven C. Deller & Craig S. Maher, 2006. "A Model of Asymmetries in the Flypaper Effect," Publius: The Journal of Federalism, Oxford University Press, vol. 36(2), pages 213-229.

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