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The Flypaper Effect: Evidence from the Italian National Health System

  • Levaggi, Rosella

    ()

  • Zanola, Roberto

    ()

Public expenditure reduction in Italy is achieved through a revision of social security and health care programmes. In particular, public health expenditure control has been implemented through a reform that imposes more stringent budget rules at local level and a considerable reduction in the grants-in-aid from central government. The response to a decrease in categorical lump-sum grants from the central to local governments might result in an asymmetrical response to intergovernmental grants: local spending is highly responsive to increases in grants, but it is relatively insensitive to grants reduction [Stine, 1994; Gramkhar and Oates, 1996]. In our paper we have estimated this hypothesis using a sample of cross-sectional and time- observations covering the 20 Italian regions over the period 1989-1993. Two different models have been estimated based on different budget balance rules. The empirical results of our model show the existence of a standard and a super flypaper effect in both models. The introduction of the soft-budget constraint hypothesis results in a stronger effect of grants and a lower response of own resources which shows that before reducing expenditure regional governments prefer to incur some deficit.

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File URL: http://polis.unipmn.it/pubbl/RePEc/uca/ucapdv/flypaper.pdf
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Paper provided by Institute of Public Policy and Public Choice - POLIS in its series POLIS Working Papers with number 10.

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Length: 24 pages
Date of creation: Jan 2000
Date of revision:
Handle: RePEc:uca:ucapdv:10
Contact details of provider: Web page: http://polis.unipmn.it

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  1. Stine, William F., 1994. "Is Local Government Revenue Response to Federal Aid Symmetrical? Evidence from Pennsylvania County Governments in a Era of Retrenchment," National Tax Journal, National Tax Association, vol. 47(4), pages 799-816, December.
  2. Gouveia, Miguel, 1997. " Majority Rule and the Public Provision of a Private Good," Public Choice, Springer, vol. 93(3-4), pages 221-44, December.
  3. Yingyi Qian & Gerard Roland, . "Federalism and the Soft Budget Constraint," Working Papers 97045, Stanford University, Department of Economics.
  4. Dewatripont, M & Maskin, E, 1995. "Credit and Efficiency in Centralized and Decentralized Economies," Review of Economic Studies, Wiley Blackwell, vol. 62(4), pages 541-55, October.
  5. Anderton, Bob & Pesaran, Bahram & Wren-Lewis, Simon, 1992. "Imports, Output and the Demand for Manufactures," Oxford Economic Papers, Oxford University Press, vol. 44(2), pages 175-86, April.
  6. Kornai, Janos, 1986. "The Soft Budget Constraint," Kyklos, Wiley Blackwell, vol. 39(1), pages 3-30.
  7. Goodspeed, Timothy, 1998. "The Relationship Between State Income Taxes and Local Property Taxes: Education Finance in New Jersey," MPRA Paper 29549, University Library of Munich, Germany.
  8. Miguel Gouveia, 1996. "The public sector and health care," International Tax and Public Finance, Springer, vol. 3(3), pages 329-349, July.
  9. Gamkhar, Shama & Oates, Wallace E., 1996. "Asymmetries in the Response to Increases and Decreases in Intergovernmental Grants: Some Empirical Findings," National Tax Journal, National Tax Association, vol. 49(4), pages 501-12, December.
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