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Intergovernmental grants and fiscal competition

Author

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  • Jakobsson, Niklas

    () (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Nordblom, Katarina

    () (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract

This theoretical paper shows how a central government can induce a policy concerning a municipal matter through a package of a policy requirement and a grant. We find that, due to fiscal competition and the possibility for citizens to move between municipalities, the central government can make all municipalities adopt the policy requirement despite the grant not being sufficiently high to make them gain from the reform. We apply this model to a recent Swedish child-care fee reform and can explain why all Swedish municipalities implemented the maximum child-care fee although it had a negative impact on many municipalities’ finances.

Suggested Citation

  • Jakobsson, Niklas & Nordblom, Katarina, 2009. "Intergovernmental grants and fiscal competition," Working Papers in Economics 338, University of Gothenburg, Department of Economics.
  • Handle: RePEc:hhs:gunwpe:0338
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    File URL: http://hdl.handle.net/2077/18961
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    References listed on IDEAS

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    More about this item

    Keywords

    child care; fiscal competition; municipality; intergovernmental grant;

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • 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
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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