Unsticking the Flypaper Effect in an Uncertain World

Carlos Vegh and Guillermo Vuletin

No 21436, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We provide a novel explanation for the flypaper effect based on insurance arguments. In our model, the flypaper effect arises due to the differential response of precautionary savings to private income or fiscal transfers shocks in an uncertain world with incomplete markets. The model generates two testable implications: (i) the flypaper effect is a decreasing function of the correlation between fiscal transfers and private income, and (ii) such relationship is stronger the higher is the volatility of fiscal transfers and/or private income. An empirical analysis of Argentinean provinces for the period 1963-2006 finds strong support for the model's implications.

JEL-codes: E21 E62 H62 H77 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-ias and nep-mac
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Published as Carlos A. Vegh & Guillermo Vuletin, 2015. "Unsticking the flypaper effect in an uncertain world," Journal of Public Economics, vol 131, pages 142-155.

Downloads: (external link)
http://www.nber.org/papers/w21436.pdf (application/pdf)

Related works:
Journal Article: Unsticking the flypaper effect in an uncertain world (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:21436

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w21436

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().