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End of the line: The Effects of Intergovernmental Grants on Local Revenue: Evidence from Chile

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  • Javiera Bravo

Abstract

This paper presents research on the effect of intergovernmental grants on local government revenue in Chile. Intergovernmental grants are endogenous and I exploit a kink in a component of the Chilean formula for resource distribution for a panel of 340 Chilean municipalities from 1990 to 2007. I find empirical evidence that for Chilean municipalities, intergovernmental grants have a negative effect on local revenue. Specifically, an increase in per capita grant amount of one standard deviation is associated with a decrease of between 0.25 and 0.32 standard deviations in local per capita revenue. This effect is not uniform for different kinds of local revenue.

Suggested Citation

  • Javiera Bravo, 2010. "End of the line: The Effects of Intergovernmental Grants on Local Revenue: Evidence from Chile," Documentos de Trabajo 393, Instituto de Economia. Pontificia Universidad Católica de Chile..
  • Handle: RePEc:ioe:doctra:393
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    File URL: http://www.economia.uc.cl/docs/dt_393.pdf
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    More about this item

    Keywords

    Fiscal decentralization; intergovernmental grants; local government revenue; local collection; regression kink design;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H39 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Other
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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