Fiscal transfers to local governments and the distribution of economic activity

Teemu Lyytikäinen, Sander Ramboer and Max Toikka

No 171, Working Papers from VATT Institute for Economic Research

Abstract: We study the economic effects of transfers to local governments using a reform of the Finnish municipal grant system as a source of exogenous variation. We find that higher grants lead to lower municipal taxes and fees, and higher public spending. These changes in local fiscal policy lead to an increase in private sector jobs. Our estimates imply a cost per job of €33,000. The increase in jobs is paired with a reduction in commuting to other municipalities. The effect on migration seems small, suggesting grants bring local benefits without drastically affecting where households choose to live.

Keywords: Local government grants; Internal migration; Labor markets; Commuting; Fiscal equalization; Regional policy; Local public finance and provision of public services; R23; R28; H72; fi=Kunnat ja hyvinvointialueet|sv=Kommuner och välfärdsområden|en=Municipalities and wellbeing services counties| (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-mig and nep-ure
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https://www.doria.fi/handle/10024/190625

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