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The flypaper effect revisited

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  • Aragon, Fernando

Abstract

This paper argues that there is nothing anomalous about the flypaper effect. I develop a simple median voter model of government spending with costly tax collection that predicts the flypaper effect and provide a quantifiable measure of its magnitude. Using the model insights and previous estimates, I show that a tax rate between 8% to 16% would account for the flypaper effect observed in U.S. subnational governments.

Suggested Citation

  • Aragon, Fernando, 2009. "The flypaper effect revisited," LSE Research Online Documents on Economics 58199, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:58199
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    File URL: http://eprints.lse.ac.uk/58199/
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    References listed on IDEAS

    as
    1. Roemer, John E & Silvestre, Joaquim, 2002. " The "Flypaper Effect" Is Not an Anomaly," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(1), pages 1-17.
    2. van de Walle, Dominique & Mu, Ren, 2007. "Fungibility and the flypaper effect of project aid: Micro-evidence for Vietnam," Journal of Development Economics, Elsevier, vol. 84(2), pages 667-685, November.
    3. Singhal, Monica, 2008. "Special interest groups and the allocation of public funds," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 548-564, April.
    4. Anwar Shah, 2006. "A Practitioner´s Guide to Intergovernmental Fiscal Transfers," Revista de Economía y Estadística, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, vol. 0(2), pages 128-186, July.
    5. Hamilton, Bruce W., 1983. "The flypaper effect and other anomalies," Journal of Public Economics, Elsevier, vol. 22(3), pages 347-361, December.
    6. Filimon, Radu & Romer, Thomas & Rosenthal, Howard, 1982. "Asymmetric information and agenda control : The bases of monopoly power in public spending," Journal of Public Economics, Elsevier, vol. 17(1), pages 51-70, February.
    7. Hamilton, Jonathan H., 1986. "The flypaper effect and the deadweight loss from taxation," Journal of Urban Economics, Elsevier, vol. 19(2), pages 148-155, March.
    8. Turnbull, Geoffrey K., 1998. "The Overspending and Flypaper Effects of Fiscal Illusion: Theory and Empirical Evidence," Journal of Urban Economics, Elsevier, vol. 44(1), pages 1-26, July.
    9. Slemrod, Joel, 1990. "Optimal Taxation and Optimal Tax Systems," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 157-178, Winter.
    10. 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.
    11. 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.
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    Citations

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    Cited by:

    1. Bev Dahlby & Ergete Ferede, 2016. "The stimulative effects of intergovernmental grants and the marginal cost of public funds," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(1), pages 114-139, February.
    2. Alvaro Morales & Prakarsh Singh, 2016. "“Face the bullet, spare the rod?” Evidence from the aftermath of the Shining Path Insurgency," HiCN Working Papers 191 updated, Households in Conflict Network.
    3. Baja Daza, Gover & Villarroel Böhrt, Sergio & Zavaleta Castellón, David, 2012. "Diseño institucional e incentivos implicitos en la descentralización Boliviana (1994-2008)
      [Institutional design and implicit incentives in Bolivia's decentralization model (1994-2008)]
      ," MPRA Paper 48598, University Library of Munich, Germany.

    More about this item

    Keywords

    flypaper effect; intergovernmental transfers; public finance; fiscal decentralization;

    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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