IDEAS home Printed from https://ideas.repec.org/p/ioe/doctra/437.html
   My bibliography  Save this paper

The Income Effect of Unconditional Grants: A Reduction in the Collection Effort of Municipalities

Author

Listed:
  • Javiera Bravo

Abstract

This paper presents research on the effect of unconditional grants on local government revenue in Chile: the receipt of transfers may engender an income effect that reduces the collection effort of municipalities. Grants are endogenous and we exploit a kink in a component of the Chilean formula for resource distribution for a panel of 340 Chilean municipalities from 1990 to 2007. We find empirical evidence that for Chilean municipalities, unconditional 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.

Suggested Citation

  • Javiera Bravo, 2013. "The Income Effect of Unconditional Grants: A Reduction in the Collection Effort of Municipalities," Documentos de Trabajo 437, Instituto de Economia. Pontificia Universidad Católica de Chile..
    • Handle: RePEc:ioe:doctra:437
    as

    Download full text from publisher

    File URL: https://www.economia.uc.cl/docs/doctra/dt-437.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. John E. Roemer & Joaquim Silvestre, 2002. "The “Flypaper Effect” Is Not an Anomaly," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(1), pages 1-17, January.
    2. Dahlberg, Matz & Mörk, Eva & Rattsø, Jørn & Ågren, Hanna, 2008. "Using a discontinuous grant rule to identify the effect of grants on local taxes and spending," Journal of Public Economics, Elsevier, vol. 92(12), pages 2320-2335, December.
    3. repec:idb:brikps:publication-detail,7101.html?id=37506 is not listed on IDEAS
    4. David S. Lee & Thomas Lemieux, 2009. "Regression Discontinuity Designs In Economics," Working Papers 1118, Princeton University, Department of Economics, Industrial Relations Section..
    5. David S. Lee & Thomas Lemieux, 2010. "Regression Discontinuity Designs in Economics," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 281-355, June.
    6. Chernick, Howard, 1998. "Fiscal Capacity in New York: The City Versus the Region," National Tax Journal, National Tax Association;National Tax Journal, vol. 51(3), pages 531-540, September.
    7. Christian Baretti & Bernd Huber & Karl Lichtblau, 2002. "A Tax on Tax Revenue: The Incentive Effects of Equalizing Transfers: Evidence from Germany," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(6), pages 631-649, November.
    8. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, April.
    9. David Card & David S. Lee & Zhuan Pei, 2009. "Quasi-Experimental Identification and Estimation in the Regression Kink Design," Working Papers 1206, Princeton University, Department of Economics, Industrial Relations Section..
    10. Melo, Ligia, 2002. "The Flypaper Effect under Different Institutional Contexts: The Colombian Case," Public Choice, Springer, vol. 111(3-4), pages 317-345, June.
    11. 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, President and Fellows of Harvard College, vol. 85(3), pages 416-439.
    12. Bradford, David F & Oates, Wallace E, 1971. "Towards a Predictive Theory of Intergovernmental Grants," American Economic Review, American Economic Association, vol. 61(2), pages 440-448, May.
    13. David Card & David S. Lee & Zhuan Pei, 2009. "Quasi-Experimental Identification and Estimation in the Regression Kink Design," Working Papers 1206, Princeton University, Department of Economics, Industrial Relations Section..
    14. Jonathan Guryan, 2001. "Does Money Matter? Regression-Discontinuity Estimates from Education Finance Reform in Massachusetts," NBER Working Papers 8269, National Bureau of Economic Research, Inc.
    15. Baretti, Christian & Huber, Bernd & Lichtblau, Karl, 2002. "A Tax on Tax Revenue: The Incentive Effects of Equalizing Transfers: Evidence from Germany," Munich Reprints in Economics 20129, University of Munich, Department of Economics.
    16. 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.
    17. Chernick, Howard, 1998. "Fiscal Capacity in New York: The City Versus the Region," National Tax Journal, National Tax Association, vol. 51(n. 3), pages 531-40, September.
    18. Jan K. Brueckner, 2003. "Strategic Interaction Among Governments: An Overview of Empirical Studies," International Regional Science Review, , vol. 26(2), pages 175-188, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michihito Ando, 2017. "How much should we trust regression-kink-design estimates?," Empirical Economics, Springer, vol. 53(3), pages 1287-1322, November.
    2. Thushyanthan Baskaran, 2016. "Intergovernmental Transfers, Local Fiscal Policy, and the Flypaper Effect: Evidence from a German State," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 72(1), pages 1-40, March.
    3. Ines Helm & Jan Stuhler, 2024. "The Dynamic Response of Municipal Budgets to Revenue Shocks," American Economic Journal: Applied Economics, American Economic Association, vol. 16(4), pages 484-527, October.
    4. Dahlberg, Matz & Mörk, Eva & Rattsø, Jørn & Ågren, Hanna, 2008. "Using a discontinuous grant rule to identify the effect of grants on local taxes and spending," Journal of Public Economics, Elsevier, vol. 92(12), pages 2320-2335, December.
    5. Manuel E. Lago & Santiago Lago-Peñas & Jorge Martinez-Vazquez, 2024. "On the effects of intergovernmental grants: a survey," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(3), pages 856-908, June.
    6. Stephan Litschig, 2008. "Financing local development: Quasi-experimental evidence from municipalities in Brazil, 1980-1991," Economics Working Papers 1142, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2012.
    7. Michael Smart, 2007. "Raising taxes through equalization," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1188-1212, November.
    8. Dilla, Diana, 2017. "Staatsverschuldung und Verschuldungsmentalität [Public Debt and Debt Mentality]," MPRA Paper 79432, University Library of Munich, Germany.
    9. Frandsen, Brigham R. & Frölich, Markus & Melly, Blaise, 2012. "Quantile treatment effects in the regression discontinuity design," Journal of Econometrics, Elsevier, vol. 168(2), pages 382-395.
    10. 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.
    11. Vittoria Idrisova & Lev Freinkman, 2010. "Impact of Federal Transfers over Regional Authorities Behavior," Research Paper Series, Gaidar Institute for Economic Policy, issue 137P.
    12. Christina Korting & Carl Lieberman & Jordan Matsudaira & Zhuan Pei & Yi Shen, 2023. "Visual Inference and Graphical Representation in Regression Discontinuity Designs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 138(3), pages 1977-2019.
    13. Christa N. Brunnschweiler & Samuel Kwabena Obeng, 2020. "Rewarding Allegiance: Political Alignment and Fiscal Outcomes in Local Government," University of East Anglia School of Economics Working Paper Series 2020-05, School of Economics, University of East Anglia, Norwich, UK..
    14. Miyazaki, Takeshi, 2016. "Intergovernmental Fiscal Transfers and Tax Efforts: Evidence from Japan," MPRA Paper 74337, University Library of Munich, Germany.
    15. Buettner, Thiess, 2006. "The incentive effect of fiscal equalization transfers on tax policy," Journal of Public Economics, Elsevier, vol. 90(3), pages 477-497, February.
    16. 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.
    17. Marianne Simonsen & Lars Skipper & Niels Skipper, 2016. "Price Sensitivity of Demand for Prescription Drugs: Exploiting a Regression Kink Design," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(2), pages 320-337, March.
    18. Barbara Engels & Johannes Geyer & Peter Haan, 2016. "Pension Incentives and Early Retirement," Discussion Papers of DIW Berlin 1617, DIW Berlin, German Institute for Economic Research.
    19. Fidrmuc, Jan & Tena, J. D., 2018. "UK national minimum wage and labor market outcomes of young workers," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 12, pages 1-28.
    20. José Durán-Cabré & Alejandro Esteller-Moré & Luca Salvadori, 2015. "Empirical evidence on horizontal competition in tax enforcement," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(5), pages 834-860, October.

    More about this item

    Keywords

    fiscal decentralization; intergovernmental grants; local revenue collection; regression kink design;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ioe:doctra:437. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jaime Casassus (email available below). General contact details of provider: https://edirc.repec.org/data/iepuccl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.