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Why Not Fully Spend a Conditional Block Grant?

  • Faber, Riemer

    ()

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Koning, Pierre

    ()

    (VU University Amsterdam)

This paper studies a conditional block grant that Dutch municipalities receive for welfare-to-work programs. Many municipalities do not fully use this grant, although programs are beneficial for them. We argue that municipalities incur expenses to use the grant. If these costs are substantial, then it is optimal not to fully use the grant. Based on municipality-specific data on grants and actual expenditures, we estimate that municipalities have to add about 90 cents from their own resources to spend 1 euro of the grant. As a result, the conditional block grant is de facto a closed-ended matching grant.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6712.

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Length: 44 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6712
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  1. David Card & Jochen Kluve & Andrea Weber, 2009. "Active Labor Market Policy Evaluations – A Meta-analysis," Ruhr Economic Papers 0086, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  2. Benedicta Marzinotto, 2011. "A European fund for economic revival in crisis countries," Policy Contributions 504, Bruegel.
  3. Huber, Bernd & Runkel, Marco, 2006. "Optimal design of intergovernmental grants under asymmetric information," Munich Reprints in Economics 19392, University of Munich, Department of Economics.
  4. Monica Singhal, 2006. "Special Interest Groups and the Allocation of Public Funds," NBER Working Papers 12037, National Bureau of Economic Research, Inc.
  5. Cashel-Cordo, Peter & Craig, Steven G., 1990. "The public sector impact of international resource transfers," Journal of Development Economics, Elsevier, vol. 32(1), pages 17-42, January.
  6. Gordon, Nora, 2004. "Do federal grants boost school spending? Evidence from Title I," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1771-1792, August.
  7. Robin Boadway & Anwar Shah, 2007. "Intergovernmental Fiscal Transfers : Principles and Practice," World Bank Publications, The World Bank, number 7171, December.
  8. Pierre Koning, 2009. "Contracting welfare-to-work services: use and usefulness," CPB Discussion Paper 135, CPB Netherlands Bureau for Economic Policy Analysis.
  9. Howard A. Chernick, 1981. "Price Discrimination and Federal Project Grants," Public Finance Review, , vol. 9(4), pages 371-394, October.
  10. Craig Volden, 2007. "Intergovernmental Grants: A Formal Model of Interrelated National and Subnational Political Decisions," Publius: The Journal of Federalism, Oxford University Press, vol. 37(2), pages 209-243, Spring.
  11. Daniel Bergvall & Claire Charbit & Dirk-Jan Kraan & Olaf Merk, 2006. "Intergovernmental Transfers and Decentralised Public Spending," OECD Working Papers on Fiscal Federalism 3, OECD Publishing.
  12. Alesha E. Doan & Deborah R. McFarlane, 2012. "Saying No to Abstinence-Only Education: An Analysis of State Decision-Making," Publius: The Journal of Federalism, Oxford University Press, vol. 42(4), pages 613-635, October.
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